What is the purpose of banking?
2 Answers
pohnpei397 | College Teacher | (Level 3) Distinguished Educator
There are at least two ways to look at this. From the point of view of a bank, the purpose of banking is to make a profit. Banks are companies just like any other, trying to make money. They make money by taking in deposits and lending them out. The interest they charge is a major way of making money.
From the point of view of a society, banking's purpose is to help the economy grow. Banking takes extra money that people have and makes it become productive. It takes our extra money and lends it out to people who can use it for things like opening new businesses. By doing this, banks help our economy.
sid-sarfraz | Student, Graduate | (Level 2) Salutatorian
Banks
Banks are institutions who receive surplus money from the people who are not using it and lend to those who need it for productive purpose.
Some important definitions of banks are given below:-
Professor G. Crowther:
"A bank is a firm which collects money from those who have it spare. It lends to those who require it."
Professor Parking:
"A bank is a firm that takes deposits from households and firms and makes loans to other household and firms.
Purpose of banks
- To earn profit
- Keep cash safe of customers
- Provides loans to customers for different purposes
- Offer financial advices
- Interest on deposits
- Allocate funds from savers to buyers efficiently
- They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities.
- Instant access to cash
- Methods to make international payments. Increasingly banks offer electronic transfer of money through systems such as BACS
- Offering special offers to customers, including arranging travel insurance. Increasingly many current accounts come with a range of extras, such as free travel insurance, etc.
Types of Banks
- Online banks
- Investment Banks
- Savings banks
- Loan bank
- Credit unions
- Commercial banks
- Central banks
- Retail banks
Functions of Banks:
- Primary functions
- Accepting deposits
- Making advances
- Credit creation
2. Secondary functions
- Clearance of cheques
- Transfer of money
- Sale and purchase of shares/Bonds
- To give/accept money
- To work as a representative
- To provide letter of credit
- To work as trusty
- Utility functions:-
- Drafts
- Lockers
- Underwriting
- Project reports
- Social Welfare Programmes
Types of Bank accounts:
- Current Account
- Savings account
- Fixed deposit account
- Foreign currency account
Types of Bank Lending:-
- Personal Loan
- Business Loan
- Mortgage
- Overdraft
