Nepedia
Back to Discover
Advanced Reader
📖

Bank

society Maturity 7-9 Vital Level 3 Next article →

A bank is a financial institution that manages money for the public.

SunTrust Bank, Gaithersburg, Maryland, August 25, 2015
SunTrust Bank, Gaithersburg, Maryland, August 25, 2015

These institutions accept deposits from customers to create demand deposits. They also provide loans to individuals and businesses. Banks are vital for the financial stability of a country. Because they are so important, most nations apply high levels of regulation. This oversight ensures that the banking system remains reliable for everyone.

Basel - Bank für internationalen Zahlungsausgleich1
Basel - Bank für internationalen Zahlungsausgleich1

Most modern banks operate using fractional-reserve banking. This is a system where banks hold liquid assets equal to only a portion of their current liabilities. Liquid assets are resources that can be quickly converted into cash. To maintain stability, regulators set minimum reserve levels. Banks must hold these funds against their deposit liabilities. This ensures they can meet customer demands for payments. Banks can acquire these reserves by accepting new deposits or borrowing from other banks. They may also sell other assets to meet these requirements.

Banks offer many different types of services to their clients. Personal banking serves individuals, while corporate banking serves businesses. Investment banking and private banking are also common. Other specialized areas include transaction banking, insurance, and consumer finance. Banks also manage trade finance and risk management. Risk management involves handling things like foreign exchange and interest rates. These varied activities allow banks to support many different parts of the economy.

NatWest Castle Street
NatWest Castle Street

The history of banking stretches back many thousands of years. Some evidence suggests banking activities began between the 4th and 3rd millennia BCE. In the 12th century, the Knights Templar provided early banking services. They allowed pilgrims to exchange money for receipts at one stronghold. These pilgrims could then withdraw funds at other strongholds. Modern banking evolved in the 14th century within Renaissance Italy. Powerful families like the Medici and the Pazzi dominated this era. Giovanni di Bicci de' Medici founded the Medici Bank in 1397.

Wypedzenie
Wypedzenie

Specific historical institutions have lasted for many centuries. Banca Monte dei Paschi di Siena was founded in 1472 and is the oldest existing retail bank. Berenberg Bank was founded in 1590 and is the oldest existing merchant bank. In the 17th and 18th centuries, fractional-reserve banking and banknotes emerged. Merchants in London often stored gold with goldsmiths for a fee. The goldsmiths issued receipts for the metal held in their vaults. These receipts eventually evolved into promissory notes and then into banknotes.

Bank of England Charter sealing 1694
Bank of England Charter sealing 1694

Banks generate revenue through several different business models. The most significant method is charging interest on loans. Banks profit from the spread between the interest they pay on deposits and the interest they charge on loans. They also earn money through transaction fees and financial advice. In the last 20 years, some banks have moved toward "one-stop shopping." This allows them to merge banking, investment, and insurance functions. They also use risk-based pricing for loans. This means they charge higher interest rates to customers with a higher credit risk.

Halifax bank, Commercial Street, Leeds (27th May 2010)
Halifax bank, Commercial Street, Leeds (27th May 2010)

Today, customers can access banking services through many different channels. Some prefer in-person banking at a physical branch. Others use an Automated Teller Machine, or ATM, to manage their money.

ATM AL RAJHI BANK
ATM AL RAJHI BANK

Digital options include online banking, mobile banking, and telephone banking. Some institutions even offer video banking through remote connections. Banks also provide various payment tools like debit cards and credit cards. These products make it easier for people to conduct transactions. However, easy access to credit also increases the risk of excessive debt for consumers.

565 words

Where will your curiosity go next?

Keep exploring at your chosen reading level.

🖼️ Images & Media (21)
File:WinonaSavingsBankVault.JPG
WinonaSavingsBankVault.JPG
File:SunTrust Bank, Gaithersburg, Maryland, August 25, 2015.jpg
SunTrust Bank, Gaithersburg, Maryland,...
File:Halifax bank, Commercial Street, Leeds (27th May 2010).jpg
Halifax bank, Commercial Street, Leeds...
File:NatWest Castle Street.jpg
NatWest Castle Street.jpg
File:Wypedzenie.jpg
Wypedzenie.jpg
File:Bank of England Charter sealing 1694.jpg
Bank of England Charter sealing 1694.jpg
File:Pohjoismaiden Osakepankin Helsingin sivukonttori.jpg
Pohjoismaiden Osakepankin Helsingin...
File:Banco de Venezuela, Coro.JPG
Banco de Venezuela, Coro.JPG
File:Bank.Pokhara.JPG
Bank.Pokhara.JPG
File:SEB Building in Tallinn.jpg
SEB Building in Tallinn.jpg
File:Bosakov dom.jpg
Bosakov dom.jpg
File:Basel - Bank für internationalen Zahlungsausgleich1.jpg
Basel - Bank für internationalen...

+ 9 more

More to explore

🔬 Go deeper

More advanced topics to explore

🪜 Step back

Simpler topics to build understanding

What is Nepedia?

A free, ad-free encyclopedia for children. Every article is written at five reading levels, so the same page works for a five-year-old and a fifteen-year-old — use the level switcher above to see this one change. No account needed to read.