Types of banks one of the major question asked by people and especially those studying banking and finance in a country.
In banking, you should know that it is not just commercial bank and central bank are the types of banks we have, as there are others. You may or may not know them, but you don’t need to worry or ask further questions as we have detailed down the major types of bank we have in this world.
Before we go further, i would like us to know what bank is all about. You may think you know it all but it tell you that you may be wrong in the end.
What is a Bank
A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.
According to Wikipedia, Banking began with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities and this system is known as a barter system.This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India also shows evidence of money lending activity.
The origins of modern banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe. One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci de’ Medici in 1397. The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.
Modern banking practices, including fractional reserve banking and the issue of banknotes, emerged in the 17th and 18th centuries. Merchants started to store their gold with the goldsmiths of London, who possessed private vaults, and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held as a bailee; these receipts could not be assigned, only the original depositor could collect the stored goods.
Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led to the development of modern banking practices; promissory notes (which evolved into banknotes) were issued for money deposited as a loan to the goldsmith. The goldsmith paid interest on these deposits. Since the promissory notes were payable on demand, and the advances (loans) to the goldsmith’s customers were repayable over a longer time period, this was an early form of fractional reserve banking. The promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money backed by the goldsmith’s promise to pay, allowing goldsmiths to advance loans with little risk of default. Thus, the goldsmiths of London became the forerunners of banking by creating new money based on credit.
The Bank of England was the first to begin the permanent issue of banknotes, in 1695. The Royal Bank of Scotland established the first overdraft facility in 1728. By the beginning of the 19th century a bankers’ clearing house was established in London to allow multiple banks to clear transactions. The Rothschilds pioneered international finance on a large scale, financing the purchase of the Suez canal for the British government.
Types of Banks
There are different types of banks we have and which every country adopt its own system or choice. The most popular types of bank we have are the commercial bank, the Central Bank of a country and the community bank.
1. The Commercial bank
The most popular and common type of bank. A commercial bank is an institution that provides services such as accepting deposits, providing business loans, and offering basic investment products. Commercial bank can also refer to a bank, or a division of a large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business
2. Central Bank
A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries.
3. Private Bank
Another types of banks is the Private banks which manage the assets of high-net-worth individuals. They help investment and other financial services provided by banks to high-net-worth individuals (HNWIs) with high levels of income or sizable assets. The term “private” refers to customer service rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers. It does not refer to a private bank, which is a non-incorporated banking institution.
4. Community Bank
A community bank is a depository institution that is typically locally owned and operated. Community banks tend to focus on the needs of the businesses and families where the bank holds branches and offices. Lending decisions are made by people who understand the local needs of families, businesses and farmers.
5. Savings Bank
savings banks took their roots in the 19th or sometimes even in the 18th century. 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. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreach – and by their socially responsible approach to business and society.
6. Agricultural Bank
This a type of bank that lends money to farmers for longer periods of time and charges them less interest than other types of banks. They are credit banks specifically established to assist in agricultural development.
7. Development Bank
Another types of banks we have is the development bank. Development bank, national or regional financial institution designed to provide medium- and long-term capital for productive investment, often accompanied by technical assistance, in poor countries. Some countries may make loans for specific national or regional projects to private or public bodies or may operate in conjunction with other financial institutions. One of the main activities of development banks has been the recognition and promotion of private investment opportunities. Although the efforts of the majority of development banks are directed toward the industrial sector, some are also concerned with agriculture.
Examples of development banks are, world bank, international monetary fund(imf), Asian development bank, African development bank, inter American development bank etc.
8. Co-operative Bank
A cooperative bank is a bank that holds deposits, makes loans and provides other financial services to cooperatives and member owned organizations.
9. Retail Bank
Retail bank, also known as consumers bank, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking.
These are the 9 major types of banks we have in the banking industry. Don’t forget to use the share button.