Overview of Banking Industry: The Industry Basics

Banking Industry Overview: Industry Basics

Banks play a key role in the entire financial system by mobilizing household deposits spread across the country and making these funds available for investment, either by lending or buying securities. Today, the banking sector has become an integral part of the economic progress of any nation and is essential to the financial well-being of individuals, businesses, nations and the entire world. In this article, we will provide an overview of key industry concepts, major sectors, and key aspects of the banking industry’s business model and trends.

A bank is a financial institution that provides banking and other financial services to its customers. Banks are a subset of the financial services industry and play an important role in the global economy. They are a key player in stimulating economic growth. The bank is a big business. The capital movements managed by the banks make it possible to grow and prosper. Businesses and governments need money to operate, and banks act as intermediaries between providers of funds and users of funds.

Banking bases: the banking law

Teaser on the banking lawBanking law is based on a contractual agreement between the bank and the customer. The client is any entity for which the bank undertakes to maintain an account or a company. Below are the generally accepted rights and obligations:

• The balance of the bank account is the financial situation between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank.
• The bank undertakes to pay the customer’s checks up to the amount credited to the customer’s account, possibly increased by the agreed overdraft limit.
• The bank cannot pay from the customer’s account without a money order from the customer, eg checks drawn by the customer.
• The bank agrees to promptly cash checks deposited in the customer’s account as the customer’s agent and credit the proceeds to the customer’s account.
• The bank has the right to combine the customer’s accounts, since each account is only one aspect of the same credit relationship.
• The bank has a lien on the checks deposited in the customer’s account, insofar as the customer is indebted to the bank.
• The bank should not disclose details of transactions through the customer’s account—unless the customer consents, there is a public duty to disclose, the interests of the bank require it, or the law requires it.
• The bank should not close a customer’s account without reasonable notice, since the checks have been outstanding in the normal course of business for several days.

These implicit contractual conditions may be modified by express agreement between the client and the bank. The laws and regulations in force in a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-client relationship.

Types of banks: Commercial and investment bank

Types of bank teaserThe banking sector can be divided into two categories: “commercial banking” and “investment banking”. Commercial banks play a key role in the overall financial system by mobilizing household deposits spread across the country and making these funds available for investment, either by lending or buying securities. Investment banks, on the other hand, raise capital (cash/cash) for businesses, which businesses need to grow and expand their business. Investment banks sell securities to public investors in the form of stocks or bonds.

Distinct types of banks are evolving to meet various business demands, social needs, and global complexities. These different banking institutions conduct their operations in different ways. However, based on their functions, customers served and products or services offered, banks can be classified as follows:

 Retail banks
 Commercial banks
 Investment banks
 Cooperative banks
 Central banks
 Specialized banks

Business model: customer profiles

Banking teaser customer profileBanks are large and complex organizations. Their clients range from individuals and institutions to governments and central banks of entire countries. This industry establishes and maintains financial relationships with a variety of customers ranging from individuals to governments to provide financial products and services. Below is the main classification of bank customers:

• Individual consumers
• Small businesses and traders
• Farmers and rural consumers
• Businesses and corporations
• Banks – national and international
• Governments
• Institutional investors
• Non-profit associations
• International customers

Business model: banking products and services

Products Services Banking teaser

The banking sector offers several facilities to its customers, including the protection of their money and valuables and the provision of many types of loans to meet their many needs such as home loans, consumer loans , personal loans, etc. Banks also provide additional services such as credit and payment services, such as checking accounts, money orders, and cashier’s checks. Banks also offer investment and insurance products. The main operational activities are listed below:

  1. Acceptance of deposit
  2. Loan of funds
  3. Clearing of checks
  4. Remittance of funds
  5. Lockers and safes
  6. Bill payment services
  7. Online banking
  8. Credit and debit cards
  9. Foreign banking services
  10. Wealth management
  11. investment bank
  12. Social goals

Banking Industry Overview: Industry Basics

Business model: banking functions

Bank teaser functionsThe banking sector is developing rapidly. It is estimated that the assets of the 1,000 largest banks are worth nearly US$100 trillion. As the industry grows, banks manage a diverse portfolio of functions. Bank provides various services and offers many products. The following discussion explains the main functions of the bank:

 Securing clients’ savings by protecting them
 Offer interest on deposits held with it
 Control money and credit supply
 Arrange funds for parties in need by borrowing from parties with surplus
 Encourage public confidence in the functioning of the financial system
 Rapidly increase savings and efficiency
 Avoid concentrating financial powers in the hands of a few individuals and institutions
 Set equal standards and conditions for all types of customers

Business model: dynamic regulatory environment

Banking regulations teaserBanks operating in most countries are exposed to various strict regulations. Most governments have rules and procedures to govern their operations and service offerings, as well as how they develop and expand their facilities to better serve the public. A banker works within the financial system to make loans, take deposits, and provide other services to their customers. They must do so in a climate of extensive regulation, designed primarily to protect public interests. The main reasons why banks are heavily regulated are:

• Protect the security of public savings.
• Control the supply of money and credit in order to achieve the general economic objective of a nation.
• Ensure equal opportunity and equity in public access to credit and other vital financial services.
• Promote public confidence in the financial system, so that savings are made quickly and efficiently.
• To avoid concentrations of financial power in the hands of a few individuals and institutions.
• Provide government with credits, tax revenues and other services.
• To assist sectors of the economy that have particular credit needs, eg housing, small business and agricultural loans, etc.;

Current industry trends

Banking trends teaserWhile various models of cooperation and integration between financial industries have emerged, some of the traditional distinctions between banks, insurance companies and securities firms are rapidly blurring. Despite all these developments, banks continue to maintain and exercise their primary role of accepting deposits and lending funds from those deposits. In recent times, advancements in technology have enabled banks to extend their reach globally, and customers no longer need to visit bank branches for every transaction, as most transactions can be done online. line.

The growth of cross-border business has also increased the demand for banks capable of providing various cross-border services to different nationalities. Despite these advances in cross-border activities, the banking sector is not nearly as globalized as some other sectors. There is no doubt that ‘technology’ is going to be a catalyst for this growth, creating huge opportunities for professionals with a good understanding of the banking industry domain.

Banking Knowledge – Resources

Related links

History of Banking: The Gold Standard and the Fractional Reserve Changing Banking Landscape and Impact on Country-Specific Strategy | The opportunity of electronic signatures in the banking sector | Case studies and challenge projects in banking | BFSI Industry Overview

Creation Date Friday, April 06, 2012 Hits 127353