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:Banker' redirects here; see for more meanings. A bank, bæŋk}} also known as a banke, bancke, banque, or banck, 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. The word bank comes from the early modern English banke, from French banque, an adaptation of Italian banca feminine, "used side by side," and in same sense, with banco masculine; adaptation of Teutonic bank, banc, "bench." The double form and gender in Romanic, cf. Italian, Spanish, Portuguese banco, banca, Provençal banc, banca, French banc, banche, are apparently original (cf. medieval Latin bancus, banca), and due to the double gender of the German: Old High German der, diu banch, Middle High German der, die banc, early modern and dialect German der, die bank. The original meaning "shelf, bench" was extended in Italian to that of "tradesman's stall, counter, money-changer's table, mensa argentaria, τράπεζα, whence "money-shop, bank," a use of the word which passed, with the trade of banking, from Italy into other countries. In this sense, Italian uses both banco and banca, Spanish and Portuguese the masculine banco; but in French the Italian feminine banca was adapted as banque, whence English banke, bank. The word is thus ultimately identical with bench and bank. Italian, monte "mount, heap, amount, stock," was used in some of the senses of "bank," the notion that the name banco, banca, originated in a German rendering of monte is erroneous: German bank had no such sense as "mount, heap," only that of "bench, shelf." Rather is it the fact, that in the development of banking, the banco of the money-changer, and the monte or "joint-stock capital" were at length combined, and bank applied in English to both. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out-of-business bank, having its bench physically broken. Money lenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. 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. 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: Financial transactions can be performed through several different channels: 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. Types of retail banks Types of investment banks Both combined Other types of banks 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. 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. 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. 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. Public perceptions of banks 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. 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. For example, the largest bank, Citigroup, which for the past 3 years has made more profit than any other company in the world, has only a 5% market share. If Citigroup were to be as dominant in its industry as a Home Depot, Starbucks, or Wal Mart in their respective industries, with a 30% market share -- and if its profit margins scaled up proportionally -- it would make more money than the top ten non-banking U.S. industries combined. 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. Top ten banking groups in the world ranked by tier 1 capital Figures in U.S. dollars, and as at end-2005 Top ten banking groups in the world ranked by assets Figures in U.S. dollars, and as at end-2004 Top ten bank holding companies in the world ranked by profit Figures in U.S. dollars, and as 2003 Top ten banks in the world ranked by market capitalisation Figures in U.S. dollars, and as at 26 July 2006 The ICBC - Industrial and Commercial bank of China was floated in late October. It would appear on the updated version of this list. History of banking Main article: History of banking Full text (510 pages) in pdf format Country specific information Types of institution Terms and concepts Related lists Notes to:Pangike | |||||||
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