Banking is a financial activity offering financial services which are carried on by businessmen and people working on a daily basis. Banking activities are conducted by banks which are financial institutions that accept deposits form customers and direct this money for lending purposes. All the activities of banks in a any country is managed and supervised by a principal monetary authority which is the central bank of the country. A central bank of a country is a autonomous or semi-autonomous organization responsible for managing banking activity like the Federal Reserve, or ‘the Fed’ in the USA. Central banks all over the world are responsible for administering monetary policy, supervise and regulate financial firms, issue of currency, open market operations, issue of currency, the administration of monetary policy, open market operations, and engaging in regulation of money supply and credit and manage the rate of exchange.
The chief functions of banks include banking services like safeguarding customer’s money, collecting checks drafts, and notes, conduct checking current and savings accounts for customers, transfer customer’s money safely to other accounts and branches in cash and electronically, maintaining a safe-deposit vault which can be rented by customers to keep valuable papers, jewels, etc., buy and sell currency of different nations, paying cheques drawn by customers on the bank, and facilitate customer payments through various payment methods including telegraphic transfer, courier, and ATM. Banks also receive demand deposits and time deposits, issues debt instruments like banknotes and bonds and pay interest on them. Banks lend money.
Mainly there three types of banks which include commercial banks, savings banks and investment banks. The chief function of a commercial bank is to handle banking needs for large and small businesses. They receive deposits from individuals, firms and corporations in all lines of business that are repayable on order. These deposits are mostly invested in short tenor loans of three to six months for commercial business purposes. Commercial banks also lend money for real and capital purchases, issues lines of credit, and accept and pay drafts. Commercial banks are very beneficial for some businesses that require accommodating a large volume of credit card payments and cash deposits.
Savings banks have the primary function of accepting savings deposit of private depositors, investing them and providing a modest return to its depositors in the form of interest. These deposits may be repaid on demand. Savings banks savings banks mainly invest in long maturity financial instruments like approved bonds and first mortgages on real estate. Savings banks also provide loans for purposes such as home improvement, mortgages, and education.
Investment banks help in financing finance capital requirements of customers, businesses and enterprises by way of helping them through the process of raising funds by issuing stocks or bonds, offering advice for a wide range of transactions a company might engage in, offer advice on mergers and acquisitions. It also carries out IPOs, private placement and acts as broker helping public and private corporations in purchasing securities, managing financial assets and trading securities.
