Bank

Bank
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For other uses, see Bank (disambiguation).
'Banker' redirects here; see wiktionary:banker for more meanings.

The First Provincial Bank of Taiwan in Taipei, Republic of China was formerly the central bank of the Republic of China and issued the New Taiwan dollar.
A bank, [bæŋk] is a business that provides banking services for profit. Traditional banking services include receiving deposits of money, lending money and processing transactions. Some banks (called Banks of Issue) issue banknotes as legal tender. Many banks offer ancillary financial services to make additional profit; for example: selling insurance products, investment products or stock broking.
Currently in most jurisdictions the business of banking is regulated and banks require permission to trade. Authorisation to trade is granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide banking services without meeting the legal definition of a bank (see banking institutions).
Banks have a long history, and have influenced economies and politics for centuries.
Traditionally, a bank generates profits from transaction fees on financial services and from the interest it charges for lending. In recent history, with historically low interest rates limiting banks' ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft fees and riskier investments.
[edit] Services typically offered by banks
Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:
Taking deposits from their customers and issuing checking and savings accounts to individuals and businesses
Extending loans to individuals and businesses
Cashing cheques
Facilitating money transactions such as wire transfers and cashiers checks
Issuing credit cards, ATM cards, and debit cards
Storing valuables, particularly in a safe deposit box
Cashing and distributing bank rolls
Financial transactions can be performed through several different channels:
Branch
ATM
Mail
Telephone banking
Online banking

[edit] Types of banks
Banks' activities can be characterised as retail banking, dealing directly with individuals and small businesses, 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 making.
In some jurisdictions retail and investment activities are, or have been, separated by law.
Central banks are non-commercial bodies or government agencies often charged with controlling interest rates and money supply across the whole economy. They act as Lender of last resort in event of a crisis.

BRD-SG in Iaşi - A small branch dedicated to retail services

[edit] 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 markets 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.
Community development banks: regulated banks that provide financial services and credit to underserved markets or populations.
Postal savings banks: savings banks associated with national postal systems.
Private banks: 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, while 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: conduct retail banking.
Ethical banks: banks that prioritize the transparency of all operations and make only social-responsible investments.

[edit] 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 markets activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade financing. 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.

[edit] Both combined
Universal banks, more commonly known as a financial services company, engage in several of these activities. For example, First Bank (a very large bank) is involved in commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Other large financial institutions are similarly diversified and engage in multiple activities. In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance, hence the term bancassurance.

[edit] Other types of banks
Islamic banks adhere to the concepts of Islamic law. Islamic banking revolves around several well established concepts which are based on Islamic canons. Since the concept of interest is forbidden in Islam, all banking activities must avoid interest. Instead of interest, the bank earns profit (mark-up) and fees on financing facilities that it extends to the customers. Also, deposit makers earn a share of the bank’s profit as opposed to a predetermined interest.

[edit] Banks in the economy

[edit] Role in the money supply
A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a capital market. The bank then lends out most of these funds to borrowers.
However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. Bank reserves are typically kept in the form of a deposit with a central bank. This behaviour is called fractional-reserve banking and it is a central issue of monetary policy. Some governments (or their central banks) restrict the proportion of a bank's balance sheet that can be lent out, and use this as a tool for controlling the money supply. Even where the reserve ratio is not controlled by the government, a minimum figure will still be set by regulatory authorities as part of bank regulation.

[edit] Size of global banking industry
Worldwide assets of the largest 1,000 banks grew 15.5% in 2005 to reach a record $60.5 trillion. This follows a 19.3% increase in the previous year. EU banks held the largest share, 50% at the end of 2005, up from 38% a decade earlier. The growth in Europe’s share was mostly at the expense of Japanese banks whose share more than halved during this period from 33% to 13%. The share of US banks also rose, from 10% to 14%. Most of the remainder was from other Asian and European countries.
The US had by far the most banks (7,540 at end-2005) and branches (75,000) in the world. The large number of banks in the US is an indicator of its geographical dispersity and regulatory structure resulting in a large number of small to medium sized institutions in its banking system. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy had more than 30,000 branches each—more than double the 15,000 branches in the UK[1].

[edit] Bank crises
Banks are susceptible to many forms of risk which have triggered occasional systemic crises. Risks include liquidity risk (the risk that many depositors will request withdrawals beyond available funds), credit risk (the risk that those that owe money to the bank will not repay), and interest rate risk (the risk 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), among others.
Banking crises have developed many times throughout history when one or more risks materialize for a banking sector as a whole. Prominent examples include the U.S. Savings and Loan crisis in 1980s and early 1990s, the Japanese banking crisis during the 1990s, the bank run that occurred during the Great Depression, and the recent liquidation by the central Bank of Nigeria, where about 25 banks were liquidated.

[edit] Regulation
Main article: Bank regulation
The combination of the instability of banks as well as their important facilitating role in the economy led to banking being thoroughly regulated. The amount of capital a bank is required to hold is a function of the amount and quality of its assets. Major banks are subject to the Basel Capital Accord promulgated by the Bank for International Settlements. In addition, banks are usually required to purchase deposit insurance to make sure smaller investors are not wiped out in the event of a bank failure.
Another reason banks are thoroughly regulated is that ultimately, no government can allow the banking system to fail. There is almost always a lender of last resort—in the event of a liquidity crisis (where short term obligations exceed short term assets) some element of government will step in to lend banks enough money to avoid bankruptcy.

[edit] Public perceptions of banks

The examples and perspective in this article or section may not represent a worldwide view of the subject.Please improve this article or discuss the issue on the talk page.
In United States history, the National Bank was a major political issue during the presidency of Andrew Jackson. Jackson fought against the bank as a symbol of greed and profit-mongering, antithetical to the democratic ideals of the United States.
Currently, many people consider that various banking policies take advantage of customers. Specific concerns are policies that permit banks to hold deposited funds for several days, to apply withdrawals before deposits or from greatest to least, which is most likely to cause the greatest overdraft, that allow backdating funds transfers and fee assessments, and that authorize electronic funds transfers despite an overdraft.
In response to the perceived greed and socially-irresponsible all-for-the-profit attitude of banks, in the last few decades a new type of banks called ethical banks have emerged, which only make social-responsible investments (for instance, no investment in the arms industry) and are transparent in all its operations.
In the US, credit unions have also gained popularity as an alternative financial resource for many consumers. Also, in various European countries, cooperative banks are regularly gaining market share in retail banking.

[edit] Profitability
Large banks in the United States are some of the most profitable corporations, especially relative to the small market shares they have. This amount is even higher if one counts the credit divisions of companies like Ford, which are responsible for a large proportion of those companies' profits.
In the past 10 years in the United States, banks have taken many measures to ensure that they remain profitable while responding to ever-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 moved toward risk-based pricing on loans, which means charging higher interest rates for those people who they deem more risky to default on loans. This dramatically helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and extends credit products to high risk customers who would have been denied credit under the previous system. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, pre-paid cards, smart-cards, and credit cards. These products make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with under-developed financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience there is also increased risk that consumers will mis-manage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and companies that accept the cards.
The banks' main obstacles to increasing profits are existing regulatory burdens, new government regulation, and increasing competition from non-traditional financial institutions.

[edit] Bank size information

[edit] Top ten banking groups in the world ranked by tier 1 capital
Figures in U.S. dollars, and as at end-2005[2]
Citigroup — 79 billion
HSBC — 75 billion
Bank of America — 73 billion
JP Morgan Chase — 72 billion
Mitsubishi UFJ Financial Group — 64 billion
Credit Agricole Group — 60 billion
Royal Bank of Scotland — 48 billion
Sumitomo Mitsui Financial Group — 40 billion
Mizuho Financial Group — 39 billion
Santander Central Hispano — 38 billion

[edit] Top ten banking groups in the world ranked by assets
Figures in U.S. dollars, and as at end-2004[3]
UBS — 1,533 billion
Citigroup — 1,484 billion
Mizuho Financial Group — 1,296 billion
HSBC Holdings — 1,277 billion
Crédit Agricole — 1,243 billion
BNP Paribas — 1,234 billion
JPMorgan Chase & Co. — 1,157 billion
Deutsche Bank — 1,144 billion
Royal Bank of Scotland — 1,119 billion
Bank of America — 1,110 billion

[edit] Top ten bank holding companies in the world ranked by profit
Figures in U.S. dollars, and as 2003
Citigroup — 21 billion
Bank of America — 15 billion
HSBC — 10 billion
Royal Bank of Scotland — 8 billion
Wells Fargo — 7 billion
JP Morgan Chase — 7 billion
UBS AG — 6 billion
Wachovia — 5 billion
Morgan Stanley — 5 billion
Merrill Lynch — 4 billion

[edit] Top ten banks in the world ranked by market capitalisation
Figures in U.S. dollars, and as at 26 July 2006[4]
The ICBC - Industrial and Commercial bank of China was floated in late October. It would appear on the updated version of this list.
Citigroup — 235 billion
Bank of America — 230 billion
HSBC — 200 billion
JPMorgan Chase — 150 billion
Mitsubishi UFJ — 145 billion
Wells Fargo — 120 billion
UBS — 110 billion
Royal Bank of Scotland — 100 billion
China Construction Bank — 100 billion
Mizuho — 95 billion

[edit] History of banking
Main article: History of banking
Florentine banking — The Medicis and Pittis among others
Banknotes — Introduction of paper money
Bank of Amsterdam
Bank of Sweden — The rise of the national banks
Bank of England — The evolution of modern central banking policies
Bank of America — The invention of centralized check and payment processing technology
Swiss bank
United States Banking
History of Money and Banking in the United States by Murray N. Rothbard.
Full text (510 pages) in pdf format
Imperial Bank of Persia — History of banking in the Middle-East