Bank: Encyclopedia II - Bank - Types of Bank

Bank - Types of Bank

Banks' activities can be characterised as retail banking, dealing direct 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 tasked with responsibility for controlling interest rates and money supply across the whole economy. They act as Lender of last resort in event of a crisis.

Bank - Types of retail banks

• Commercial bank, is the term used for a normal bank to distinguish it from an investment bank. 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 corporations or large businesses.
• Community development bank are regulated banks that provide financial services and credit to underserved markets or populations.
• Postal savings banks are savings banks associated with national postal systems. Japan and Germany are examples of countries with prominent postal savings banks.
• Private banks manage the assets of high net worth individuals.
• Offshore banks are banks located in jurisdictions with low taxation and regulation, such as Switzerland or the Channel Islands. Many offshore banks are essentially private banks.
• Savings banks traditionally accepted savings deposits and issued mortgages. Today, some countries have broadened the permitted activities of savings banks.
• Building societies and Landesbanks both conduct retail banking

Bank - Types of investment banks

• Investment banks "underwrite" (guarantee the sale of) stock and bond issues and advise on mergers. Examples of investment banks are Goldman Sachs of the USA or Nomura Group of Japan.
• Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provides capital to firms in the form of shares rather than loans. Unlike Venture capital firms, they tend not to invest in new companies.

Bank - Both combined

• Universal banks, more commonly known as a financial services company, engage in several of these activities. For example, Citigroup, a very large American bank, is involved in commercial and retail lending; it owns a merchant bank (Citicorp Merchant Bank Limited) and an investment bank (Salomon Smith Barney); it operates a private bank (Citigroup Private Bank); finally, its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Almost all large financial institutions are diversified and engage in multiple activities. In Europe and Asia, big banks are very diversified groups that, among other services, distribute also insurance, whence the bancassurance term.

Bank - Other types of banks

• Islamic banks adhere to the concepts of Islamic banking. Islamic banking revolves around several well established concepts which are based on Islamic canons. Since the concept of Interest is forbidden in Islam, all banking activities must avoid interest. Instead of interest, the Bank earns profit (mark-up) and fees on financing facilities that it extends to the customers. Also, deposit makers earn a share of the Bank’s profit as opposed to a predetermined interest.

Adapted from the Wikipedia article "Types of Bank", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki