Taylor Scott
There are many different types of banking institutions, each serving specific purposes and affecting the market in unique ways. These institutions play a crucial role in the economy by bridging the gap between individuals looking to securely save their money and those in need of loans. Central banks, such as the Federal Reserve System in the United States, manage the money supply, supervise commercial banks, and implement monetary policies. Commercial banks tend to support businesses, while retail banks, also known as personal or general banking institutions, cater to individuals, small businesses, and large corporations, offering services like checking accounts, savings accounts, loans, and credit cards. Credit unions are not-for-profit cooperatives owned by their members, serving specific communities. Online banks operate solely through digital platforms without physical branches, often providing lower fees and higher interest rates. Investment banks cater to large corporations, providing financial advice and facilitating complex transactions. These diverse institutions cater to varying customer needs, creating a competitive and accessible banking environment.
| Characteristics | Values |
|---|---|
| Type of Institution | Central Banks, Retail Banks, Commercial Banks, Credit Unions, Online Banks, Investment Banks, Savings and Loan Associations, Edge Corporations, Agreement Corporations, Industrial Banks |
| Customer Type | Individual consumers, businesses, institutional clients, corporations, groups with a "common bond", specific communities |
| Services | Checking and savings accounts, loans, credit cards, mortgages, financing, overdraft protection, credit services, cash management, real estate services, employer services, trade finance, foreign currency exchange, investment services, insurance products |
| Ownership | Shareholder-owned, mutual ownership, member-owned |
| Regulation | FDIC, NCUA, Federal Reserve Board, Federal Deposit Insurance Corporation, Federal Reserve System, OCC, state government regulator, Federal Home Loan Bank System, Federal Reserve System, Federal Credit Association, National Credit Union Administration, CDIC |
| Location | Physical branches, online |
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What You'll Learn
Retail banks
Banking is a crucial piece of one's finances, and there are many different banks, each serving specific purposes in the economy. Retail banking, also known as consumer or personal banking, is a bank's services that deal directly with individual consumers rather than businesses or large institutions. Retail banks provide financial services to the general public, allowing them to manage their money by offering access to basic banking services, credit, and financial advice.
One of the biggest trends in retail banking today is the shift to mobile and online banking. Banks are adding more tools and features to retain existing customers and attract new ones, such as the ability to put temporary holds on cards, view recurring charges, or use biometric authentication to log into an account.
While retail banking services are aimed at individuals, corporate banking services are offered only to small or large companies and corporate bodies. Corporate banking works directly with businesses to provide them with loans, credit, business checking accounts, and business savings accounts designed specifically for companies.
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Commercial banks
The largest commercial banks are known as money centre banks, which operate in global financial capitals such as New York, London, and Tokyo. These banks provide a wide range of financial services, including commercial banking, investment banking, asset management, and international banking. They serve multinational corporations, governments, and institutional clients. Examples of money centre banks include JPMorgan Chase, Bank of America, Citi, and Wells Fargo.
In summary, commercial banks play a crucial role in the economy by facilitating financial transactions, providing loans, and offering various financial services to individuals and businesses. They are an essential component of the global financial system.
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Central banks
One of the primary roles of central banks is to manage the money supply of a country. They control the flow of currency and are the sole providers and printers of notes and coins in circulation. This involves ensuring the uniformity and authenticity of the currency and regulating its supply to control inflation and liquidity. Central banks also manage foreign exchange reserves, regulating exchange rates and interfering in foreign exchange markets when necessary.
Additionally, central banks supervise commercial banks and set interest rates, which helps control the cost of borrowing and lending throughout the economy. They act as the regulatory authority, ensuring the stability of commercial banks and preventing bank runs. Central banks also implement and advise on a government's monetary policy goals, such as combating deflation or stabilising prices.
In times of economic crisis, central banks can act as the "lender of last resort", providing funds to the economy when commercial banks cannot cover a shortage. This role is vital in preventing the collapse of a country's banking system.
The concept of the modern central bank emerged in the 20th century, with the Bank of England, established in 1694, playing a significant role in shaping the idea. The expression "central bank" itself came into use in the early 19th century. However, the definition of what constitutes a central bank has evolved over time, with some scholars debating the timeline of the emergence of the first central banks.
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Credit unions
Credit union systems vary significantly worldwide in terms of total assets and average institution asset size. In 2018, the number of members in credit unions worldwide was 375 million, with a notable presence in several African and Latin American countries, as well as Australia and South Korea.
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Online banks
Online banking, also known as internet banking, virtual banking, web banking or home banking, has become the most common way for customers to access their bank accounts since the early 2010s. It allows customers to conduct a range of financial transactions through the financial institution's website or mobile app.
Online banking significantly reduces banks' operating costs by decreasing their reliance on physical branches, and offers customers the convenience of being able to perform banking transactions outside of conventional banking hours. Online banking is accessible from anywhere with an internet connection, using a desktop or laptop, while mobile banking is accessible on smartphones and tablets.
Some banks operate as "direct banks" or "neobanks", which function entirely online without any physical branches. Neobanks are branchless banks in the United States that are not FDIC-insured, although their partner banks often are, so customers' money is protected. Online-only banks are becoming increasingly popular due to their comprehensive digital features and better interest rates on deposit accounts.
To open an online bank account, customers generally need to be a US person for federal tax purposes, have a valid US address, be at least 18 years old, and have a US Social Security or Tax Identification number. They will need to provide their physical address, email address, occupation, employer, and source of funds to open the account. Once the account is open, it can be linked to a traditional bank account to transfer money between the two banks.
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Frequently asked questions
There are several types of banking institutions, including central banks, retail banks, commercial banks, credit unions, online banks, investment banks, and savings and loan associations.
Retail banks, also known as commercial or personal banks, are the most common type of bank. They serve individuals, small businesses, and large corporations. Services provided include checking and savings accounts, loans, credit cards, mortgages, and other financial products. Examples of retail banks include TD Bank, Citibank, JP Morgan Chase, and Bank of America.
Central banks manage the money supply in a single country or a series of nations. They supervise commercial banks, set interest rates, and control the flow of currency. Central banks also implement the government’s monetary policy goals. Examples of central banks include the Federal Reserve System in the United States and the European Central Bank in the eurozone.
Credit unions are not-for-profit financial cooperatives owned and controlled by their members. They serve specific communities, such as employees of a company, members of an organization, or residents of a particular area. Credit unions offer similar services to traditional banks but often with better rates and lower fees.
