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BANKS

A bank is a financial institution licensed by a government. 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 provides 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.

Role of banks

The commercial role of banks is not limited to banking, and includes:

• issue of banknotes (promissory notes issued by a banker and payable to bearer on demand)
• processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means
• issuing bank drafts and bank cheques
• accepting money on term deposit
• lending money by way of overdraft, installment loan or otherwise
• providing documentary and standby letters of credit (trade finance), guarantees, performance bonds, securities underwriting commitments and other forms of off-balance sheet exposures
• safekeeping of documents and other items in safe deposit boxes
• currency exchange
• acting as a 'financial supermarket' for the sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products

Types of banks
Banks' activities can be divided into retail banking and investment banking.

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 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: 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.
• Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners.

Types of Investment Banks
• 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.
• Investment banks 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.