There are several different types of banks in a modern economy. They all
offer very similar services, but tend to specialize in particular financial
products and groups of consumers.
1. Commercial Banks
Commercial banks are also often called as `high street banks` because they have so many branches located in cities and towns. However, many banks provide phone and online banking facilities for their costumers so there is no need to visit a branch.
Commercial banks were originally set up to provide financial services
for small businesses but now they provide services for everyone from private
individuals to both large and small businesses. These services will include.
- Accepting deposits of money and savings
- Helping costumers make and receive payments
- Making personal and commercial loans
- Buying and selling shares for their costumers
- Providing Insurance
- Operating pension funds
- Financial and tax planning advice
- Storing valuables, etc
2. Saving Banks
These banks were originally setup to provide a safe and accessible place for people on low incomes to keep their savings. Many started as mutual saving banks, owned and run on behalf of their depositors, but many have since become limited companies owned by their shareholders. Many now offer similar services to individual costumers as the commercial banks, and have branches in many towns and cities.
In some countries, national savings banks are government organizations
set up to provide a secure place for ordinary people to keep money, and in so
doing providing money which the government can borrow.
3. Savings and Loans Associations
These specialize in keeping savings deposits and lending money to people on low incomes to buy homes. These long-term loans are known as mortgages. Many began as non-profit-making mutual institutions owned and run by their members who held accounts. In the UK these are known as building societies. Today SLA`s can be owned by share holders, aim to make a profit, and can offer a full range of financial services similar to commercial banks.
4. Credit Unions
A credit union is a co-operative, not-for-profit organization, owned by its members. Credit unions were started by people who worked or lived together to provide low-cost loans to members who were on low incomes and unable to borrow money from other banks, for example, to help with home repairs, school fees and medical expenses. Credit unions are popular in the US, and many have now expanded the range of services they offer to include checks, credit cards and loans to small businesses.
5. Investment Banks
These banks specialize in helping large business organisations raise finance to fund there operations and expansion, usually through helping them to issue and sell stocks and share on the stock market. They can also provide advice on company mergers and takeovers. Today, most large commercial banks also provide investment banking services.
Merchant Banks are a type of investment bank. They were originally set up to help merchants finance the sale and transportation of goods overseas. Today, they provide finance for large companies through the purchase of their shares rather than providing loans.
6. Islamic Banks
Islamic Banking is raise on principles of Islamic sharia law, which forbids interest charges and payments. Instead an Islamic bank can earn a profit from the fees it charges costumer for banking services including making loans and people who deposit their money will earn a share of the bank`s profits rather than be paid interest.
Multi national banking organizations, like HSBC, also provide sharia-compliant banking services in many countries.