Types of Banks

By: EconomyWatch   Date: 8 September 2010

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Whether commercial or public, government or private - there are numerous types of banks, each serving its own specific role.

There are several types of banks in the world, and each has a specific role and function - as well as a domain - in which they operate. In broad strokes, banks may be divided into several groups on the basis of their activities and these include investment banks, retail, private, business, and also corporate banks. Many of the larger banks have multiple divisions covering some or all of these categories.

Retail banks deal directly with consumers and small business owners. They focus on mass market products such as current and savings accounts, mortgages and other loans, and credit cards. By contrast, private banks normally provide wealth management services to high net worth families and individuals.

Business banks provide services to businesses and other organizations that are medium sized, whereas the clients of corporate banks are usually major business entities.

Lastly, investment banks provide services related to financial markets, such as mergers and acquisitions.

Another way in which banks may be categorised is on the basis of their ownership. They might either be privately held or publicly owned banks.

Privately owned banks are motivated by profit in their business operations. Publicly owned banks are held by the state governments of the individual countries and they serve as a nation’s centralized bank, as well as an economic backbone for that particular country. They are also known as central banks.

Publicly owned banks, which are controlled by the government, have numerous responsibilities pertaining to the banking sector of the country, such as administering various activities for the commercial banks of that country. They also determine the rates of interest offered by banks doing business in that country, as well as playing a major role in maintaining liquidity in the banking sector.

There are several types of notable retail banks. These include the offshore, community and savings banks, as well as the community development banks, building societies, postal savings banks, ethical banks and Islamic banks.

Offshore banks operate in areas of reduced taxes, as compared to the country in which the investor lives in. This is why most offshore banks are private banks.

Community banks are monetary organizations operated on a local basis, while community development banks cater to the populations, or markets, that have typically not been served properly.

Postal savings banks are basically savings banks that operate in conjunction with the national postal systems of that country.

Building societies where traditionally mutually owned by their customers. They provide a full range of retail banking services, but with a particular focus on mortgages.

Ethical banks do their business based on their own code of conduct. They only accept investments that they perceive to be useful from a social and environmental point of view. The Islamic Banks perform their business operations as per the Sharia law, the Islamic code of law. In particular, this means that they operate sans interest.

There are two types of investment banks - the investment banks that perform underwriting activities, and the merchant banks, a traditional form of banking, that performs trade-financing activities.

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