Banks
A bank is a commercial or
state
institution
that
provides
financial
services,
including
issuing
money in
various
forms,
receiving
deposits of
money,
lending
money and
processing
transactions
and the
creating of
credit. A
commercial
bank accepts
deposits
from
customers
and in turn
makes loans,
even in
excess of
the
deposits; a
process
known as
fractional-reserve
banking.
Some banks
(called
Banks of
issue) issue
banknotes as
legal
tender. Many
banks offer
ancillary
financial
services to
make
additional
profit; for
example,
most banks
also rent
safe deposit
boxes in
their
branches.
Currently in
most
jurisdictions
commercial
banks are
regulated
and require
permission
to operate.
Operational
authority is
granted by
bank
regulatory
authorities
which
provides
rights to
conduct the
most
fundamental
banking
services
such as
accepting
deposits and
making
loans. A
commercial
bank is
usually
defined as
an
institution
that both
accepts
deposits and
makes loans;
there are
also
financial
institutions
that provide
selected
banking
services
without
meeting the
legal
definition
of a bank.
Banks have
influenced
economies
and politics
for
centuries.
Historically,
the primary
purpose of a
bank was to
provide
loans to
trading
companies.
Banks
provided
funds to
allow
businesses
to purchase
inventory,
and
collected
those funds
back with
interest
when the
goods were
sold. For
centuries,
the banking
industry
only dealt
with
businesses,
not
consumers.
Commercial
lending
today is a
very intense
activity,
with banks
carefully
analysing
the
financial
condition of
their
business
clients to
determine
the level of
risk in each
loan
transaction.
Banking
services
have
expanded to
include
services
directed at
individuals,
and risk in
these much
smaller
transactions
are pooled.
A bank
generates a
profit from
the
differential
between the
level of
interest it
pays for
deposits and
other
sources of
funds, and
the level of
interest it
charges in
its lending
activities.
This
difference
is referred
to as the
spread
between the
cost of
funds and
the loan
interest
rate.
Historically,
profitability
from lending
activities
has been
cyclic and
dependent on
the needs
and
strengths of
loan
customers.
In recent
history,
investors
have
demanded a
more stable
revenue
stream and
banks have
therefore
placed more
emphasis on
transaction
fees,
primarily
loan fees
but also
including
service
charges on
array of
deposit
activities
and
ancillary
services
(international
banking,
foreign
exchange,
insurance,
investments,
wire
transfers,
etc.).
However,
lending
activities
still
provide the
bulk of a
commercial
bank's
income.
The name
bank
derives from
the Italian
word
banco
"desk", used
during the
Renaissance
by
Florentines
bankers, who
used to make
their
transactions
above a desk
covered by a
green
tablecloth
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