Bank

What Is a Bank?

A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several types of banks including commercial banks, investment banks, and savings and loans.

Examples of Banks

Commercial Banks:
- JPMorgan Chase: Provides a variety of banking products and services to businesses, communities, and individuals.
- Bank of America: Offers traditional checking and savings accounts, lending products, and wealth management services.
Savings and Loans Associations (S&Ls):
- Ally Bank: Initially began as a savings and loan association and now provides online banking services.
- Northwest Bank: Especially focuses on personal and business banking, as well as home financing options.
Investment Banks:
- Goldman Sachs: Provides asset management, mergers & acquisitions advisory, and securities underwriting.
- Morgan Stanley: Focuses on wealth management, investment banking, and institutional securities services.

Frequently Asked Questions (FAQ)

What are the main types of banks?

There are three primary types of banks: commercial banks, investment banks, and savings and loan associations.

What services do banks provide?

Banks provide a wide range of services including accepting deposits, providing checking and savings accounts, giving loans, wealth management, and others.

How do banks make money?

Banks make money primarily through the interest on loans and the fees they charge for their services.

Are all banks FDIC insured?

Most commercial banks and savings and loan associations in the U.S. are insured by the Federal Deposit Insurance Corporation (FDIC), which protects depositors’ funds up to specified limits.

Can anyone open a bank account?

Generally, anyone who meets the bank’s requirements regarding identification and minimum deposit amounts can open a bank account.

Commercial Bank: A financial institution that offers services such as accepting deposits, providing checking accounts, and giving business loans.

Savings and Loan Associations (S&L): A financial institution specializing in accepting savings deposits and making mortgage and other loans.

Investment Bank: A financial institution that provides advisory services, capital raising, asset management, and other sophisticated financial services.

Credit Union: A member-owned financial cooperative providing traditional banking services but often with better interest rates and lower fees than commercial banks.

Central Bank: A national financial institution that oversees monetary policy, regulates banks, and provides financial services including the nation’s currency issuance.

Online Resources

FDIC Website
- Offers information about deposit insurance and banking regulations.
Federal Reserve System
- Provides resources on monetary policy and economic research.
American Bankers Association
- Contains articles, training, and a directory of banking institutions.

References

Federal Deposit Insurance Corporation (FDIC). “About the FDIC.”
Federal Reserve System. “The Structure of the Federal Reserve System.”
U.S. Securities and Exchange Commission. “Investment Banks.”

Suggested Books for Further Studies

“The Wealth of Nations” by Adam Smith
- A classic tome that examines economic thoughts about finance and banking.
“Principles of Banking” by Gup and Kolari
- A good foundation book for understanding how banks operate.
“Liar’s Poker” by Michael Lewis
- Provides insights into the world of investment banking.
“The House of Morgan” by Ron Chernow
- Chronicles the history of J.P. Morgan and the American banking industry.
“Commercial Banking” by Benton E. Gup
- Addresses the practical aspects of commercial banking, including management and policy issues.

Real Estate Basics: Bank Fundamentals Quiz

### What primary activities do commercial banks engage in? - [x] Accepting deposits and making loans. - [ ] Trading stocks and commodities. - [ ] Providing insurance services exclusively. - [ ] Issuing traveler's checks. > **Explanation:** The primary activities of commercial banks include accepting deposits and making loans to individuals and businesses. ### What type of bank primarily deals with underwriting and merger activities? - [ ] Commercial Bank - [ ] Savings and Loan Association - [x] Investment Bank - [ ] Credit Union > **Explanation:** Investment banks specialize in underwriting new issuance of securities, managing mergers, and other high-level financial advisory services. ### Are deposits in all U.S. banks automatically insured by the FDIC? - [ ] No, only deposits in commercial banks are insured. - [ ] Yes, all deposits in the U.S. banks are insured. - [x] No, only deposits in FDIC-member banks are insured. - [ ] Yes, but only up to $50,000 per account. > **Explanation:** Only deposits in FDIC-member banks are insured, and the protection limit is up to $250,000 per depositor per bank. ### What differentiates a savings and loan association from a commercial bank? - [x] Focus on residential mortgages. - [ ] Offering checking accounts. - [ ] Providing credit cards. - [ ] Customer identity verification process. > **Explanation:** Savings and Loan Associations (S&Ls) primarily focus on accepting deposits and making residential mortgage loans. ### Which term best describes a member-owned financial cooperative? - [ ] Commercial Bank - [ ] Investment Bank - [ ] Savings and Loan Association - [x] Credit Union > **Explanation:** A credit union is a member-owned financial cooperative, typically offering services similar to commercial banks, often with better loan rates and lower fees. ### How do banks generally generate revenue? - [ ] By charging high fees for opening an account. - [x] Collecting interest on loans and charging fees for services. - [ ] Only through customer deposits. - [ ] By issuing a large number of credit cards. > **Explanation:** Banks generate revenue by collecting interest on loans and charging various fees for banking services provided. ### What is the role of central banks? - [ ] They conduct retail banking operations for the general public. - [ ] They underwrite municipal bonds. - [x] They control monetary policy and regulate intermediary banks. - [ ] They offer investment advice and portfolio management. > **Explanation:** Central banks are primarily responsible for managing monetary policy, regulating the banking sector, and issuing currency. ### Which type of financial institution often provides better interest rates and lower fees than commercial banks? - [x] Credit Unions - [ ] Investment Banks - [ ] Central Banks - [ ] Insurance Companies > **Explanation:** Credit unions, being member-owned cooperatives, often offer lower fees and better interest rates on loans and deposits than commercial banks. ### What service is typically NOT associated with commercial banks? - [ ] Checking Accounts - [ ] Savings Accounts - [x] Currency speculation - [ ] Personal Loans > **Explanation:** Currency speculation is typically not a service provided by commercial banks; it is mainly associated with investment banking activities. ### Who insures deposits in commercial banks and savings and loan associations in the United States? - [ ] The Federal Reserve System - [ ] The U.S. Treasury Department - [x] The Federal Deposit Insurance Corporation (FDIC) - [ ] The American Bankers Association > **Explanation:** The Federal Deposit Insurance Corporation (FDIC) insures deposits in commercial banks and savings and loan associations in the United States.