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Banking and How It Works

A bank is a type of financial institution that is authorized to accept deposits and provide people with personal loans, car loans and home loans.

Retail banks, commercial or corporate banks, and investment banks are among the various types of banks available.

Wealth management, currency exchange, and safe deposit boxes are all financial services that banks may offer.

The national government or central bank regulates banks in most countries.

Banking is a business that deals with lending, cash storage, investments, and other types of financial transactions.

Because it channels funds to borrowers with bad credit, the banking industry is one of the most important drivers of most economies.

The ideas and principles relating to the practice of banking are referred to as banking fundamentals.

Individuals and families, financial and non-financial companies, and state and local governments will all be depositors.

Borrowers are similar to borrowers.

Deposits should be made available immediately or with some limitations.

Banks make money by charging a higher interest rate on loans than on customer deposits.

They must, however, follow the central bank’s or national government’s rules.

Banking Fundamentals – How the Banking Industry Works

Banking is one of the most important economic drivers in South Africa.

It provides the necessary liquidity for families and companies to make long-term investments.

Families don’t have to save up for college or a home because of bank loans and credit.

Companies use loans to immediately begin hiring in order to meet future demand and expand.

The Board of Governors of the Federal Reserve sets the reserve threshold.

The Fed is introducing an expansionary monetary policy when it lowers the reserve requirement for member banks. This raises the amount of money in the economy.

When it raises the reserve requirement, on the other hand, it is pursuing a tightening monetary policy that lowers liquidity.

Banks play a critical role in the economy by providing essential services to both customers and enterprises.

They provide you with a secure place to store your money as a financial services provider.

Banks also provide credit to both individuals and businesses.

Your short-term cash deposit is used to lend to others for long-term debt like car loans, credit cards, mortgages, and other debt cars.

This process aids in the creation of market liquidity, which generates money and keeps the supply flowing.

A bank’s goal, like any other company, is to make a profit for its owners.

The owners of other banks are their shareholders.

Banks do this by charging borrowers higher interest rates on loans and other forms of debt than they do on savings accounts.

Depending on the type of business they do, banks can be classified into one of several categories.

Private individuals and enterprises may use commercial banks’ services.

Individuals and families should use retail banking to get credit, make deposits, and manage their money.

These services are available via the internet banking system.

E-banking, online banking, and net banking are all terms used to describe this industry.

The majority of other banks also provide online banking services, there are a lot of banks that only operate online.

They should pass cost savings to the customer so they don’t have any branches.

National banks, state-chartered banks, merchant banks, and other financial institutions are all included in this number.

Consumers benefit from higher interest rates and lower fees at these banks.

Traditional banks have a physical location as well as an online presence, but in the early 2010s, a new trend of online-only banks emerged.

Retail banks

Though some global financial services firms have both retail and commercial banking divisions, retail banks specialize in serving individual customers.

Personal or general banking institutions are banks that provide services to the general public.

Many larger retail banks also provide credit cards to their customers and may also provide foreign currency exchange services.

High-net-worth individuals are often catered to by larger retail banks, which provide them with specialized services such as private banking and wealth management.

Investment banks

Investment banks specialize in providing complex services and financial transactions to corporate clients, such as underwriting and helping with mergers and acquisitions.

As a result, in the majority of these transactions, they are known mainly as financial intermediaries.

Large banks, other financial institutions, pension funds, ministries, and hedge funds are all common clients.

Top Investment Banks in South Africa

  • Investec Bank Limited
  • P. Morgan Chase Bank
  • Mercantile Bank Limited
  • Merrill Lynch
  • Morgan Stanley
  • Nedbank Limited
  • Old Mutual
  • Royal Bank of Scotland
  • Sasfin Bank Limited
  • Societe Generale
  • South African Bank of Athens Limited
  • Absa Bank Limited
  • African Bank Limited
  • Albaraka Bank Limited
  • Bank of Baroda
  • Bank of China
  • Bank of Taiwan
  • Bidvest Bank Limited
  • BNP Paribas
  • Caylon Corporate and Investment Bank
  • Capitec Bank Limited
  • China Construction Bank Corporation
  • Citibank N.A.
  • Deutsche Bank AG
  • FirstRand Bank
  • Grindrod Limited
  • Habib Overseas Bank Limited
  • Hongkong and Shanghai Banking Corporation
  • Imperial Bank South Africa
  • Standard Bank of South Africa
  • Standard Chartered Bank
  • State Bank of India
  • Teba Bank Limited
  • UBS

Central banks are not market-based and do not deal directly with the general public, unlike the banks mentioned above.

Rather, they are in charge of currency stability, inflation control, and monetary policy, as well as overseeing a country’s money supply.

Corporates banks

These banks offer credit services, cash management, commercial real estate services, employer services, and trade finance to their customers in addition to day-to-day enterprise banking.

Small business owners to large corporations rely on commercial or corporate banks for specialized services.

Banking Fundamentals – Types of Bank Accounts

Savings account

The bank lends money to borrowers and charges interest on the money lent.

A savings account is a bank account where a customer can deposit money they don’t need right away but can access whenever they need it.

Cheque account

Customers should withdraw money or make payments with a debit card, or set up automatic transfers to another account.

Customers who have a cheque account can easily access their deposited funds and use it to conduct financial transactions such as bill payment.

Borrowing Money

While some depositors need money at any given time, the majority do not.

As a result, banks are able to make longer-term loans with shorter-term deposits.

Short-term liabilities are converted into long-term assets as part of the maturity transformation process.

In most countries, banks pay depositors less than they receive from borrowers, and this difference accounts for the majority of their revenue.

Direct borrowing in the money and capital markets can help banks supplement traditional deposits as a source of funding.

Banks should also package their loans into a security and sell it to the market to raise money to reinvest.

Individuals and governments need not only a place to deposit and borrow money, but also the ability to move funds from one party to another, such as from consumers to sellers or employers to workers.

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