Banking

Banking sector is the backbone of economy and every single business entity. The whole economic system and the business have built their structures on the foundations of banking. Even for some reasons banking system collapses the whole economy would go down with it. As in the current market situation, the banking sector is in a slump and has suffered great losses and gone into mergers and acquisitions. Therefore economy, all over the globe, is suffering greatly; people are experiencing pay cuts and unemployment. A bank is basically a financial institution which is licensed by a government. A bank is involved in many activities ranging from borrowing and lending money to playing a major role in financial markets and offers various financial services such as investment funds.The origin of banking dates back to centuries. From the earlier days, banking has existed in one from or another. Banks functions by conducting checking or current accounts for customers, collecting checks deposited to customers’ current accounts and paying checks drawn by customers on the bank. Banks undertakes the function of borrowing of money by accepting term deposits, funds deposited on current accounts, issuing debt securities such as banknotes and bonds. Banks undertake the function of lending of money by making installment loans, making advances to customers on current accounts and investing in marketable debt securities. Coming to the economic role that a bank plays, it issues money in the form of banknotes and current accounts. Banks act as both collection and paying agents for customers therefore it helps in settlement of payments. Because banks lend money they help in credit quality improvement. So think for a second, what would happen to the economic setup if the banks just stop working.Banks also play many commercial roles. They issue banknotes which are promissory notes issued by a banker and are payable to bearer on demand. They process payments through internet banking and telegraphic transfer. Banks also issues drafts and checksThey accept money on term deposit and lend money through overdraft and installment loan. Banks guarantees, performance bonds and securities underwriting commitments and they also provide documentary and standby letters of credit for trade financing. They also act as safe keeper of documents and other items in safe deposit boxesThey carry out currency exchange. They are called ‘financial supermarket’ because they are a place for the sale, distribution or brokerage of unit trusts, insurance and similar financial products. There are many channels through which a bank operates such as video and telephone banking, branches, ATM, mail, online banking and now with mobile banking as well.Banks are of different types depending on the type of function they are carrying out. The bank dealing with the deposits and loans is called a commercial bank. The ones dealing with services to mid-market business is known as business banking. The banks that are directed to providing services to individuals are called private banks. The banks that are located in other areas with low regulations and taxes are known to be carrying out offshore banking. When it is based on the Islamic principles it is called Islamic banking.With the advancement in technology, like other things, banks have also gone online. Online banks have become a great blessing for everyone dealing with a bank. An internet bank is one which offers its customers all the services online. They do not have to get out of the chair to make a financial transaction. They can do it just with a click of the computer mouse. Internet banks are very convenient, fast, effective and efficient. In short, a complete package just a click away. A customer does pay some bank charges for this facility.