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Bank

A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans.[1] Lending activities can be directly performed by the bank or indirectly through capital markets.[2]

This article is about financial organisation that provides money upon conditions. For other uses, see Bank (disambiguation).

Whereas banks play an important role in financial stability and the economy of a country, most jurisdictions exercise a high degree of regulation over banks. Most countries have institutionalized a system known as fractional-reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities.[3] In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, the Basel Accords.[4]


Banking in its modern sense evolved in the fourteenth century in the prosperous cities of Renaissance Italy but, in many ways, functioned as a continuation of ideas and concepts of credit and lending that had their roots in the ancient world. In the history of banking, a number of banking dynasties – notably, the Medicis, the Fuggers, the Welsers, the Berenbergs, and the Rothschilds – have played a central role over many centuries. The oldest existing retail bank is Banca Monte dei Paschi di Siena (founded in 1472), while the oldest existing merchant bank is Berenberg Bank (founded in 1590).

Etymology[edit]

The word bank was taken into Middle English from Middle French banque, from Old Italian banco, meaning "table", from Old High German banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.[23][24]

"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 (), Section 2, Interpretation).

Singapore

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

: risk of loss arising from a borrower who does not make payments as promised.[33]

Credit 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).

Liquidity 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.

Market risk

: risk arising from the execution of a company's business functions.

Operational risk

: a type of risk related to the trustworthiness of the business.

Reputational risk

: risks related to the aggregate economy the bank is operating in.[34]

Macroeconomic risk

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. Bank capital consists principally of equity, retained earnings and subordinated debt.


Some of the main risks faced by banks include:


The capital requirement is a bank regulation, which sets a framework within which a bank or depository institution must manage its balance sheet. The categorisation of assets and capital is highly standardised so that it can be risk weighted.


After the financial crisis of 2007–2008, regulators force banks to issue Contingent convertible bonds (CoCos). These are hybrid capital securities that absorb losses in accordance with their contractual terms when the capital of the issuing bank falls below a certain level. Then debt is reduced and bank capitalisation gets a boost. Owing to their capacity to absorb losses, CoCos have the potential to satisfy regulatory capital requirement.[35][36]

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.

The bank agrees to pay the customer's checks up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit.

The bank may not pay from the customer's account without a mandate from the customer, e.g. a cheque drawn by the customer.

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.

And, the bank has a right to combine the customer's accounts since each account is just an aspect of the same credit relationship.

The bank has a on cheques deposited to the customer's account, to the extent that the customer is indebted to the bank.

lien

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.

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.

Currently, commercial banks are regulated in most jurisdictions by government entities and require a special bank license 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, being either publicly or privately governed 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 licenses 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:


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 or create new rights, obligations, or limitations relevant to the bank-customer relationship.


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


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

dealing directly with individuals and small businesses;

retail banking

providing services to mid-market business;

business banking

directed at large business entities;

corporate banking

providing wealth management services to high-net-worth individuals and families;

private banking

relating to activities on the financial markets.

investment banking

or ordinary deposit accounts  – permit any amount to be added to or withdrawn from the account at any time.

Passbook

NOW and Super NOW accounts  – function like checking accounts but earn interest. A minimum balance may be required on Super NOW accounts.

 – carry a monthly limit of preauthorised transfers to other accounts or persons and may require a minimum or average balance.

Money market accounts

Certificate accounts  – subject to loss of some or all interest on withdrawals before maturity.

Notice accounts  – the equivalent of certificate accounts with an indefinite term. Savers agree to notify the institution a specified time before withdrawal.

(IRAs) and Keogh plans  – a form of retirement savings in which the funds deposited and interest earned are exempt from income tax until after withdrawal.

Individual retirement accounts

 – offered by some institutions under definite restrictions.

Checking accounts

All withdrawals and deposits are completely the sole decision and responsibility of the account owner unless the parent or guardian is required to do otherwise for legal reasons.

Club accounts and other  – designed to help people save regularly to meet certain goals.

savings accounts

Globalisation in the banking industry[edit]

In modern times there have been huge reductions to the barriers of global competition in the banking industry. Increases in telecommunications and other financial technologies, such as Bloomberg, have allowed banks to extend their reach all over the world since they no longer have to be near customers to manage both their finances and their risk. The growth in cross-border activities has also increased the demand for banks that can provide various services across borders to different nationalities. Despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalised as some other industries. In the US, for instance, very few banks even worry about the Riegle–Neal Act, which promotes more efficient interstate banking. In the vast majority of nations around the globe, the market share for foreign owned banks is currently less than a tenth of all market shares for banks in a particular nation. One reason the banking industry has not been fully globalised is that it is more convenient to have local banks provide loans to small businesses and individuals. On the other hand, for large corporations, it is not as important in what nation the bank is in since the corporation's financial information is available around the globe.[49]

Born, Karl Erich. International Banking in the 19th and 20th Centuries (St Martin's, 1983)

online

– World's Biggest Banks

Guardian Datablog

from UCB Libraries GovPubs (archived 11 January 2012)

Banking, Banks, and Credit Unions

(PDF). Office of the Comptroller of the Currency (OCC), Washington, D.C. Provides an overview of the national banking system of the US, its regulation, and the OCC.

A Guide to the National Banking System