Different Types of Banking

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A bank is a financial institution which is involved in borrowing and lending money. Banks take customer deposits in return for paying customers an annual interest payment. The bank then uses the majority of these deposits to lend to other customers for a variety of loans. The difference between the two interest rates is effectively the profit margin for banks. Banks play an important role in the economy for offering a service for people wishing to save. Banks also play an important role in offering finance to businesses who wish to invest and expand.  These loans and business investment are important for enabling economic growth.

High Street Banks providing services to the general public. In the UK The Big Five banks are HSBC, Halifax, Lloyds TSB, Natwest and Alliance & Leicester.

Business Banking- Many high street banks provide specialised services for businesses. They operate similar to ordinary accounts but usually have more services and more fees.

Investment Banking- These are financial institutions who invest money on behalf of investment trusts, pension funds and high street Banks. They look for the best way to invest money through knowledge of different bond markets, exchange rate markets and the stock market.

Central Banks- Underpinning most modern banking systems is the Central Bank. Usually a quasi-government organization, Central Banks have various tasks such as ensuring sufficient liquidity, acting as lender of last resort and in some cases setting Monetary Policy. The aim of the banking system is to provide security and confidence in the economy. If banks were allowed to go bankrupt and consumers lost savings; it would cause widespread financial panic and many consumers would withdraw their savings and hold as cash.

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