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What exactly is banking?
Banking is directly or indirectly linked to a country’s trade and the lives of its citizens. It is defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending it out to conduct economic activities such as profit or simply covering operating expenses.
It’s a business that deals with credit, cash, and other types of financial transactions. In banking, the commercial bank is the most powerful institution in terms of influencing a country’s economy or providing credit to its customers.
Why is banking important?
It is because those who are unbanked or underbanked are unable to take advantage of services that lead to financial security. Many people must use services outside of the banking system to cash checks or borrow money, incurring unnecessary transaction fees and interest. Here are some of the reasons why banking is at the top of the list of financial literacy pillars.
Money is issued in the form of banknotes and current accounts that are subject to payment by check or at the customer’s request. Because these bank claims are negotiable or repayable on demand, and thus valued at par, they can be used as money. In the case of banknotes, they can be effectively transferred by simply delivering them, or by drawing a check that the payee can deposit or cash.
In a fractional-reserve banking system, whenever a bank makes a loan, new money is created, and when the principal on that loan is repaid, money is destroyed.
Keep your money safe
Keep track of your finances and create a budget
Direct deposit allows you to receive your paycheck quickly
Make financial transactions easier
Protect your liquid assets by purchasing insurance
Debit and credit card services are available
Make money by earning interest
Take out a loan
Put your money to good use
Create a credit history to generate a FICO credit score that will help you borrow money and build wealth
Corporate Divisions of Banks
Banks serve a wide range of market segments and operate in a variety of ways. As a result, many large banking firms have multiple divisions or groups that make up the total number of bank corporate divisions. While each bank may have its own divisions, the following are the most common:
Banking for the general public
Commercial/Corporate Banking
Banking on the World Stage
Banking Services for Individuals
Banking on investments
Banking for the general public
The retail banking division handles the typical day-to-day banking that most people associate with banks. This includes services such as checking and savings accounts, as well as the issuance of credit cards. Loans, mortgages, and other forms of financing may be provided by retail banking divisions.
Banking for Business
Commercial banking provides similar services to retail banking, but to a larger audience. Whereas retail banking is focused on the individual, commercial banking is focused on small and large businesses. (In some cases, however, banks will serve small businesses through their retail banking division.)
A specialized global banking division that specializes in cross-border transactions may exist within a bank. A global banking group may offer the following services in addition to those provided by a commercial banking division.
Banking Services for Individuals
Private banking divisions specialize in wealth management for HNWIs and families. Investment, insurance, and loan products may be offered as services.
Banking on investments
A corporate division of a bank that specializes in capital raising is known as an investment bank. Investment banking is, without a doubt, the most glamorous branch of the banking industry. The suits and salaries attract many aspiring business students to this highly competitive field.
Underwriting debt and equity issuances, assisting with the launch of an IPO, investing the client’s excess funds, and other services are all examples of how an investment bank can help its clients.
Importance of Financial Services
The presence of financial services enables a country’s economic condition to improve, resulting in increased production in all sectors, resulting in economic growth.
1. Encouragement of investment
The presence of financial services increases product demand, and the producer, in order to meet the consumer’s demand, increases investment. At this point, financial services, such as merchant bankers, come to the rescue of the investor, allowing the producer to raise capital through the new issue market.
2. Savings promotion
Mutual funds and other financial services make it possible to save in a variety of ways. In fact, a variety of investment options are made available for the convenience of both retirees and their families.
3. Keeping the risks to a minimum
The presence of insurance companies reduces the risks of both financial services and producers. Various types of risks are covered, including those posed by natural calamities as well as those posed by changing business conditions.
4. Getting the Most Out of Your Investment
The availability of financial services allows entrepreneurs to maximize their profits. This is possible because credit is available at a reasonable rate. For the acquisition of assets, producers can use a variety of credit options.
5. Assures a higher yield
There is a subtle difference between return and yield, as we’ve already seen. It is the yield that encourages more producers to enter the market and increase their output in order to meet consumer demand. Financial services allow producers to increase their profits while also increasing their wealth.
What is the need for banking?
The banking system’s goal is to provide economic security and confidence. If banks were allowed to fail and consumers’ savings were lost, widespread financial panic would ensue, and many people would withdraw their savings and hold them as cash.
Conclusion
Banks play a critical role in the economy by providing essential services to both consumers and businesses. They provide you with a secure place to store your money as a financial services provider. You can conduct routine banking transactions such as deposits, withdrawals, check writing, and bill payments through a variety of account types such as checking and savings accounts, as well as certificates of deposit (CDs). You can also put your money aside and earn interest in it. The Federal Deposit Insurance Corporation (FDIC) insures the money in most bank accounts.
