A bank is a financial intermediary A financial intermediary is an entity that connects surplus and deficit agents. The classic example of a financial intermediary is a bank that transforms bank deposits into bank loans that accepts deposits A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to and channels those deposits into lending A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower activities, either directly or through capital markets A capital market is a market for securities , where business enterprises (companies) and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). The capital market includes the stock market (. A bank connects customers with capital deficits to customers with capital surpluses.

Banking is generally a highly regulated Bank regulations are a form of government regulation which subject banks to certain requirements, restrictions and guidelines industry, and government restrictions on financial activities by banks have varied over time and location. The current set of global bank capital standards are called Basel II Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital. In some countries such as Germany A region named Germania, inhabited by several Germanic peoples, has been known and documented before AD 100. Beginning in the 10th century, German territories formed a central part of the Holy Roman Empire, which lasted until 1806. During the 16th century, northern Germany became the centre of the Protestant Reformation. As a modern nation-state,, banks have historically owned major stakes in industrial corporations while in other countries such as the United States ^ b. English is the de facto language of American government and the sole language spoken at home by 80% of Americans age five and older. Spanish is the second most commonly spoken language banks are prohibited from owning non-financial companies. In Japan Japan is an island state in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south. The characters that make up Japan's name mean "sun-origin", which is why Japan is, banks are usually the nexus of a cross-share holding entity known as the keiretsu A keiretsu is a set of companies with interlocking business relationships and shareholdings. It is a type of business group. In Iceland banks had very light regulation prior to collapse.

The oldest bank still in existence is Monte dei Paschi di Siena Banca Monte dei Paschi di Siena S.p.A. is the oldest surviving bank in the world. Founded in 1472 by the Magistrate of the city state of Siena, Italy, as a mount of piety, it has been operating ever since. Today it consists of approximately 3 thousand branches, 33 thousand employees and 4.5 million customers in Italy, as well as branches and, headquartered in Siena Siena listen (Italian pronunciation: [ˈsjɛ(ː)na]; also widely spelled Sienna in English) is a city in Tuscany, Italy. It is the capital of the province of Siena, Italy Italy (pronounced /ˈɪtəli/ ; Italian: Italia [iˈtaːlja]), officially the Italian Republic (Italian: Repubblica italiana), is a country located partly on the European Continent and partly on the Italian Peninsula in Southern Europe and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern, Alpine, which has been operating continuously since 1472.^[1]

History

Banks date back to ancient times. During the 3rd century AD, banks in Persia Iran (Persian: ایران [ʔiˈɾɒn] ), officially the Islamic Republic of Iran, and formerly known as Persia, is a country in Central Eurasia and Western Asia. The name Iran has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was widely known as Persia. Both Persia and Iran are and other territories in the Persian Sassanid Empire The Sassanid Empire or Sasanian Empire, known to its inhabitants as Ērānshahr and Ērān, was the last pre-Islamic Persian Empire, ruled by the Sasanian Dynasty from 224 to 651. The Sassanid Empire, which succeeded the Parthian Empire, was recognized as one of the two main powers in Western Asia and Europe alongside the Roman Empire and later issued letters of credit A standard, commercial letter of credit is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking known as Ṣakks. Muslim traders Islamic economics in practice, or economic policies supported by self-identified Islamic groups, has varied throughout its long history. Traditional Islamic concepts having to do with economics included are known to have used the cheque A cheque or check is a piece of paper (usually) that orders a payment of money. The person writing the cheque, the drawer, usually has a chequing account where their money is deposited. The drawer writes the various details including the money amount, date, and a payee on the cheque, and signs it, ordering their bank, know as the drawee, to pay or ṣakk system since the time of Harun al-Rashid Hārūn al-Rashīd was the fifth and most famous Abbasid Caliph. He was born in Rayy, near Tehran, Iran, and lived in Baghdad, Iraq and most of his reign was in Ar Raqqah at the middle Euphrates (9th century) of the Abbasid Caliphate The Abbasid Caliphate was the third of the Islamic Caliphates of the Islamic Empire [disambiguation needed]. It was ruled by the Abbasid dynasty of caliphs, who built their capital in Baghdad after overthrowing the Umayyad caliphs from all but Al Andalus. In the 9th century, a Muslim businessman could cash an early form of the cheque in China China is seen variously as an ancient civilization extending over a large area in East Asia, a nation and/or a multinational entity drawn on sources in Baghdad Baghdad is the capital of Iraq and of Baghdad Governorate, with which it is coterminous. Having a municipal population estimated between 7 and 7.5 million, it is the largest city in Iraq and the second largest city in the Arab World (after Cairo, Egypt),^{[2][verification needed]} a tradition that was significantly strengthened in the 13th and 14th centuries, during the Mongol Empire The Mongol Empire (Mongolian: Монголын Эзэнт Гүрэн , Mongolyn Ezent Güren or Их Mонгол улс, Ikh Mongol Uls) was an empire from the 13th and 14th century spanning from Eastern Europe across Asia. It is the largest contiguous empire in the history of the world. It emerged from the unification of Mongol and Turkic tribes.^{[citation needed]} Fragments found in the Cairo Geniza The Cairo Geniza is an accumulation of almost 280,000 Jewish manuscript fragments that were found in the genizah or store room of the Ben Ezra Synagogue in Fustat, presently Old Cairo, Egypt, the Basatin cemetery east of Old Cairo, and a number of old documents that were bought in Cairo in the later 19th century. It is dispersed among a number of indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent. The earliest known state deposit bank, Banco di San Giorgio The Bank or Company of Saint George was a financial institution of the Republic of Genoa. Founded in 1407, it was one of the oldest chartered banks in Europe, if not the world. The bank's headquarters were at the Palazzo San Giorgio, which was built in the 13th century by order of Guglielmo Boccanegra, uncle of Simone Boccanegra, the first Doge of (Bank of St. George), was founded in 1407 at Genoa Genoa (Italian: Genova listen , pronounced [ˈdʒɛːnova]; in Genoese and Ligurian: Zena, pronounced [ˈzeːna]; in Latin and, archaically, in English: Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria. The city has a population of about 610,000 and the urban area has a, Italy Italy (pronounced /ˈɪtəli/ ; Italian: Italia [iˈtaːlja]), officially the Italian Republic (Italian: Repubblica italiana), is a country located partly on the European Continent and partly on the Italian Peninsula in Southern Europe and on the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italy shares its northern, Alpine.^[3] Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence Florence (Italian: Firenze listen , pronounced [fiˈrɛntse]; alternative obsolete spelling: Fiorenza, Latin: Florentia) is the capital city of the Italian region of Tuscany and of the province of Florence. It is the most populous city in Tuscany, with 367,569 inhabitants (1,500,000 in the metropolitan area), Venice Venice (Italian: Venezia [veˈnɛttsia] , Venetian: Venesia) is a city in northern Italy known both for tourism and for industry, and is the capital of the region Veneto, with a population of 271,367 (census estimate 1 January 2004). Together with Padua, the city is included in the Padua-Venice Metropolitan Area (population 1,600,000). The name is and Genoa Genoa (Italian: Genova listen , pronounced [ˈdʒɛːnova]; in Genoese and Ligurian: Zena, pronounced [ˈzeːna]; in Latin and, archaically, in English: Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria. The city has a population of about 610,000 and the urban area has a. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe Europe is one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally divided from Asia to its east by the water divide of the Ural Mountains, the Ural River, the Caspian Sea, the Caucasus region (Specification of borders) and the Black Sea to the southeast. Europe is bordered by the Arctic Ocean and<.ref>Hoggson, N. F. (1926) Banking Through the Ages, New York, Dodd, Mead & Company.</ref> Perhaps the most famous Italian bank was the Medici The House of Medici or de' Medici was a political dynasty, banking family and later royal house that first began to gather prominence under Cosimo de' Medici in the Republic of Florence during the late 14th century. The family originated in the Mugello region of the Tuscan countryside, gradually rising until they were able to found the Medici Bank bank, set up by Giovanni Medici in 1397.^[4]

Origin of the word

The word bank was borrowed in Middle English Middle English is the name given by historical linguists to the diverse forms of the English language in use between the late 11th century and about 1470, when the Chancery Standard, a form of London-based English, began to become widespread, a process aided by the introduction of the printing press into England by William Caxton in the late 1470s from Middle French Middle French is an historical division of the French language which covers the period from (roughly) 1340 to 1611. It is a period of transition during which: banque, from Old Italian Italian ( italiano , or lingua italiana) is a Romance language spoken as a native language by about 62 million people in Italy, San Marino and parts of Switzerland, Croatia, Slovenia and France. It is spoken as a first language by many Italian citizens and immigrants abroad, for a total of approximately 70 million native speakers. In addition, it banca, from Old High German The term Old High German refers to the earliest stage of the German language and it conventionally covers the period from around 500 to 1050. Coherent written texts do not appear until the second half of the 8th century, and some treat the period before 750 as 'prehistoric' and date the start of Old High German proper to 750 for this reason. There banc, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance The Renaissance was a cultural movement that spanned roughly the 14th to the 17th century, beginning in Florence in the Late Middle Ages and later spreading to the rest of Europe. The term is also used more loosely to refer to the historic era, but since the changes of the Renaissance were not uniform across Europe, this is a general use of the by Florentine Florence (Italian: Firenze listen , pronounced [fiˈrɛntse]; alternative obsolete spelling: Fiorenza, Latin: Florentia) is the capital city of the Italian region of Tuscany and of the province of Florence. It is the most populous city in Tuscany, with 367,569 inhabitants (1,500,000 in the metropolitan area) bankers, who used to make their transactions atop desks covered by green tablecloths.^[5]

The earliest evidence of money-changing activity is depicted on a silver drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon Trabzon , historically known as Trapezus and Trebizond, is a city on the Black Sea coast of north-eastern Turkey and the capital of Trabzon Province. Trabzon, located on the historical Silk Road, became a melting pot of religions, languages and culture for centuries and a trade gateway to Iran in the southeast, Russia and the Caucasus to the, c. 350–325 BC, presented in the British Museum The British Museum is a museum of human history and culture in London. Its collections, which number more than seven million objects, are amongst the largest and most comprehensive in the world and originate from all continents, illustrating and documenting the story of human culture from its beginning to the present.[a] in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek Modern Greek refers to the varieties of Greek spoken in the modern era. The beginning of the "modern" period of the language is often symbolically assigned to the fall of the Byzantine Empire in 1453, even though that date marks no clear linguistic boundary and many characteristic modern features of the language had been present the word Trapeza (Τράπεζα) means both a table and a bank.

Definition

The definition of a bank varies from country to country. See the relevant country page (below) for more information.

Under English common law Common law is law developed by judges through decisions of courts and similar tribunals , rather than through legislative statutes or executive branch action. A "common law system" is a legal system that gives great precedential weight to common law, on the principle that it is unfair to treat similar facts differently on different, a banker is defined as a person who carries on the business of banking, which is specified as:^[6]

• conducting current accounts for his customers
• paying cheques drawn on him, and
• collecting cheques for his customers.

In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments A negotiable instrument is a specialized type of "contract" for the payment of money that is unconditional and capable of transfer by negotiation. As payment of money is promised later, the instrument itself can be used by the holder in due course frequently as money. Common examples include cheques, banknotes , and commercial paper. In, including cheques A cheque or check is a piece of paper (usually) that orders a payment of money. The person writing the cheque, the drawer, usually has a chequing account where their money is deposited. The drawer writes the various details including the money amount, date, and a payee on the cheque, and signs it, ordering their bank, know as the drawee, to pay, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques A cheque or check is a piece of paper (usually) that orders a payment of money. The person writing the cheque, the drawer, usually has a chequing account where their money is deposited. The drawer writes the various details including the money amount, date, and a payee on the cheque, and signs it, ordering their bank, know as the drawee, to pay does not depend on how the bank is organised or regulated.

The business of banking is in many English common law Common law is law developed by judges through decisions of courts and similar tribunals , rather than through legislative statutes or executive branch action. A "common law system" is a legal system that gives great precedential weight to common law, on the principle that it is unfair to treat similar facts differently on different countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

• "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

• "banking business" means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers^[7]

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.^[8]

Banking

Standard activities

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.^{[clarification needed]}

Channels

Banks offer many different channels to access their banking and other services:

• ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services.
• A branch is a retail location
• Call center
• Mail: most banks accept check deposits via mail and use mail to communicate to their customers, eg by sending out statements
• Mobile banking is a method of using one's mobile phone to conduct banking transactions
• Online banking is a term used for performing transactions, payments etc. over the Internet
• Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses
• Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human
• Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.

Business model

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers. The bank profits from the differential between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance.

In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of products (which, the banks hope, will also increase profitability). Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the cards. This helps in making profit and facilitates economic development as a whole.

Products

Retail

• Business loan
• Cheque account
• Credit card
• Home loan
• Insurance advisor
• Mutual fund
• Personal loan
• Savings account

Wholesale

• Capital raising (Equity / Debt / Hybrids)
• Mezzanine finance
• Project finance
• Revolving credit
• Risk management (FX, interest rates, commodities, derivatives)
• Term loan

Risk and capital

Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include:

• Credit risk: risk of loss arising from a borrower who does not make payments as promised.
• Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit).
• Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors.
• Operational risk: risk arising from execution of a company's business functions.

The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted (see risk-weighted asset).

Banks in the economy

Economic functions

The economic functions of banks include:

1. Issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a cheque that the payee may bank or cash.
2. Netting and settlement of payments – banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them.
3. Credit intermediation – banks borrow and lend back-to-back on their own account as middle men.
4. Credit quality improvement – banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.
5. Maturity transformation – banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets).

Bank crisis

Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals in excess of available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans).

Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisis in the 2000s.

Size of global banking industry

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record $96.4 trillion while profits declined by 85% to $115bn. Growth in assets in adverse market conditions was largely a result of recapitalisation. EU banks held the largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totalled $66.3bn in 2009, up 12% on the previous year.^[9]

The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000).^{[citation needed]} This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.^[9]

Regulation

Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate.

Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order—although money lending, by itself, is generally not included in the definition.

Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licences banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank.

Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customer—defined as any entity for which the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it.
8. The bank must not close a customer's account without reasonable notice, since cheques are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.

Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank licence requirements, and therefore regulated under separate rules.

The requirements for the issue of a bank licence vary between jurisdictions but typically include:

1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.

Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.

Types of retail banks

• Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
• Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.
• Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
• Postal savings banks: savings banks associated with national postal systems.
• Private banks: banks that manage the assets of high net worth individuals.
• Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
• Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
• Building societies and Landesbanks: institutions that conduct retail banking.
• Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.

Types of investment banks

• Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions.
• Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

Both combined

• Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance— hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.

Other types of banks

• Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.
• Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers.

Challenges within the banking industry

United States

In the United States, the banking industry is a highly regulated industry with detailed and focused regulators. All banks with FDIC-insured deposits have the FDIC as a regulator; however, for examinations,^{[clarification needed]} the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (“OCC”) is the primary federal regulator for national banks; and the Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulator—the OCC. Qualified Intermediaries & Exchange Accommodators are regulated by MAIC.

Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere.

The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing.

In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS, MAIC and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States.

The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders.

The management of the banks’ asset portfolios also remains a challenge in today’s economic environment. Loans are a bank’s primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of “good times.” The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs.

Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks’ management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc.

As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage and MAIC trust & Securities Clearing services trading and become big players in such activities.

Accounting for bank accounts

Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and MAIC there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit a credit account to decrease its balance.^[10]

This also means you debit your savings account every time you deposit money into it (and the account is normally in deficit), while you credit your credit card account every time you spend money from it (and the account is normally in credit).

However, if you read your bank statement, it will say the opposite—that you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance.

The reason for this is that the bank, and not you, has produced the bank statement. Your savings might be your assets, but the bank's liability, so they are credit accounts (which should have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so they are debit accounts (which should also have a positive balance).

Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holder—which is traditionally what most people are used to seeing.

Brokered deposits

One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors through MAIC or other trust corporations. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to be engaged in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the Savings and loan crisis of the 1980s. MAIC Regulation of brokered deposits is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits.^[11]

See also

References

1. ^ Boland, Vincent (2009-06-12). "Modern dilemma for world’s oldest bank". Financial Times. http://www.ft.com/cms/s/0/a034542e-5771-11de-8c47-00144feabdc0.html?nclick_check=1. Retrieved 23 February 2010.
2. ^ Paul, Vallely (11 March 2006). "How Islamic inventors changed the world". Independent (London). http://www.independent.co.uk/news/science/how-islamic-inventors-changed-the-world-469452.html. Retrieved 26 May 2009.
3. ^ Macesich, George (30 June 2000). "Central Banking: The Early Years: Other Early Banks". Issues in Money and Banking. Westport, Connecticut: Praeger Publishers (Greenwood Publishing Group). p. 42. doi:10.1336/0275967778. ISBN 978-0-275-96777-2. http://books.google.com/books?id=k1OYMZ8OzMUC&pg=PA42. Retrieved 2009-03-12. "The first state deposit bank was the Bank of St. George in Genoa, which was established in 1407."
4. ^ Goldthwaite, R. A. (1995) Banks, Places and Entrepreneurs in Renaissance Florence, Aldershot, Hampshire, Great Britain, Variorum
5. ^ de Albuquerque, Martim (1855). Notes and Queries. London: George Bell. pp. 431. http://books.google.com/books?id=uIrWLegNZxUC&pg=PA431&lpg=PA431&dq=bank+italian+bench&source=web&ots=gp-um7BxxP&sig=r8eVJxS5-aLx3dmb_BmFxYuvW-U.
6. ^ United Dominions Trust Ltd v Kirkwood, 1966, English Court of Appeal, 2 QB 431
7. ^ (Banking Ordinance, Section 2, Interpretation, Hong Kong) Note that in this case the definition is extended to include accepting any deposits repayable in less than 3 months, companies that accept deposits of greater than HK$100 000 for periods of greater than 3 months are regulated as deposit taking companies rather than as banks in Hong Kong).
8. ^ e.g. Tyree's Banking Law in New Zealand, A L Tyree, LexisNexis 2003, page 70.
9. ^ ^{a b} Banking 2010PDF (638 KB) charts 7–8, pages 3–4. International Financial Services, London (IFSL).
10. ^ Statistics Department (2001). "Source Data for Monetary and Financial Statistics". Monetary and Financial Statistics: Compilation Guide. Washington D.C.: International Monetary Fund. p. 24. ISBN 9781589065840. http://books.google.com/books?id=a03zkw-5fcEC&pg=PT36. Retrieved 2009-03-14.
11. ^ "For Banks, Wads of Cash and Loads of Trouble" article by Eric Lipton and Andrew Martin in The New York Times July 3, 2009

• "Genoa and the history of finance: a series of firsts ?" Giuseppe Felloni, Guido Laura. 9 November 2004, ISBN 88-87822-16-6 (the book can be downloaded at www.giuseppefelloni.it)

Further reading

• Bank Business Account Info
• Banking, Banks, and Credit Unions from UCB Libraries GovPubs
• A Guide to the National Banking System (PDF). Office of the Comptroller of the Currency (OCC), Washington, D.C. Provides an overview of the national banking system of the USA, its regulation, and the OCC.

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