A bank is a financial institution that is licensed by their government to take deposits and make loans. Additional services typically offered by banks are currency exchanges, wealth management, and safety deposit boxes. Most banks are regulated by their national government or by a central banking system.
Banks are a crucial part of today’s economy as they provide vital economic services to consumers and businesses. Banks provide a safe place to store cash or other liquid assets, and offer loans to their clients.
There are four different types of banks that deal with the market and public, and one other type of bank to oversee the four others. Many banks will offer multiple types of banking services, like this bank.
Retail Banking
Retail banks are banks that cater their services to individual consumers. Most big names in the banking industry such as J.P Morgan Chase or Wells Fargo offer retail banking in addition to other banking services. Retail banks offer checking and savings accounts, loans, credit and debit cards, mortgages, and short term loans and financing.
Larger retail banks will offer additional services to their customers such as foreign currency exchanges, better plans, and larger loans. Also, larger retail banks can specialize their services toward high networth individuals, though it is still referred to as retail banking.
Commercial Banking
The second type of bank is commercial banks. These banks are focused towards small to medium sized businesses. Typically commercial banks will offer their clients larger loans than retail banks, and to handle the businesses’ treasury.
Institutional Banking
Similar to commercial banks, institutional banks specialize their services to the large businesses and corporations. Examples of companies that use institutional banking are Google, Apple, Amazon, and Disney. In addition to large companies, some government departments will also use institutional banking methods and services.
Because the needs of these gigantic corporations and institutions are different from your typical ‘mom and pop shop’, they require banking services of a much higher focus. Institutional bankers help their clients with mergers and acquisitions (M&As), handling investments, and managing treasuries.
Investment Banking
Investment banks specialize in growing money for individuals, businesses, and corporations. Some of these specialized services include underwriting new debt and security equities, helping in selling securities, aiding in M&As, and broker trades for private investors and institutional investors.
Investment banks can offer advice to their clients regarding the value of companies they may be looking to invest in or acquire. In addition to this, they also provide advice on how to best structure deals for mergers, acquisitions, and private investments.
Central Banks
The last type of bank in this list is central banks. Unlike all the other banks we mentioned, central banks don’t offer services to the public or participate in the market. Central banks are managed by governments, and typically oversee other banks such as retail, commercial, institutional, and investment banks.
Central banks are responsible for currency stability, controlling inflation, and regulating capital reserve requirements for various banks. An example of a central bank is the Federal Reserve.
Takeaways
Not every bank is the same, and most banks specialize in one or more types of banking. The main types of banks are retail, commercial, institutional, and investment banking. Central banks act to regulate and control currency and also to manage banks.
