What Is a Bank? Economic Functions and Services Offered to Customers

What Is a Bank?

A bank can be defined in terms of: · Economic Functions · Services offered to customers · Legal basis In terms of Economic Functions, banks can be defined as "Financial intermediary that accept deposits and provide loans". Also they are involved in transferring funds from savers to borrowers (financial intermediation) and in paying for the goods and services.5

How Does the Banking System Work?

Banking systems manage the flow of money between individuals and businesses by accepting deposits and lending out money for investments. Banks earn interest from loans, the cost of managing consumer accounts, and investing for profits.

Purpose of the Banking System

The purpose of the banking system is to provide an easy way for people to pay for goods and services, save their money, and transfer money between accounts. Also banking systems provide credit opportunities and payment

Types of Banking Systems

• Central Banks: they are financial institutions that regulate and control all other banks; they are not regulated by any superior bank. For most countries in Europe, America, and other parts of the world, they are the only provider of coins and notes in circulation. Also, the purpose of the central bank is to stabilize a country's currency by controlling inflation.
• Commercial Banks: they are community banks that accept deposits and offer businesses and consumers loans. They provide a range of services such as checking or savings account, loan and mortgage services, cars financing, money transfer, or bills payments. Some commercial banks also offer insurance investment, and retirement services.
• Investment Banks: they are a type of bank that act as an intermediary in large and complex financial transactions. They provide financial services such as investing and raising capital or arranging mergers and acquisitions.

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Basic Banking Services

Banks offer various ways to store your cash and various ways to borrow money:

• Checking Accounts: they are deposits used by consumers and businesses to pay their bills and make cash withdrawals. They pay little or no interest. Generally, checking accounts cover everyday expenses, such as rent, utility, and medical bills
• Savings accounts: Account holders who keep their money in the bank for a long time, can open a regular savings account paying a little interest.
• Loan service: banks make loan to consumers and businesses. The cash that is deposited by their customers is lent out to other customers. This is a process that keeps economy functioning; people deposit their money in bank that lends the money in car cards, mortgages and businesses loans.

Bank of England

The Bank of England (BoE) is the central bank of theUnited Kingdom and a model on which most central banks around the world are built. Founded in 1694, the bank has changed from being a private bank to the official central bank of the United Kingdom in 1946. The bank started during a period of economic turbulence when the national debt was growing at a steady rate.

Governance of the Bank of England

The Court of Directors oversees the operations of the bank and the court members are appointed by the King (on the recommendation of the Chancellor and the Prime Minister)

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Functions of the Bank of England

The Bank of England's primary functions are tomaintain monetary stability and oversee financial stability of the UK financial system. The bank also acts as the lender of last resort and as the custodian of the official gold reserves in UK.

Monetary Stability

Monetary stability relates to maintaining stable prices and confidence in the currency. The BoE has been designated as authority responsible for providing bank notes in UK for over 300 years now. The bank also monitors developments in the economy and possible threats to the financial system such as corruption or fraud.