Today, the banking industry is considered as the backbone of the economy and has a major contribution to its growth. It's also the main driver for currency and financial stability. But how did the story of banking start?
The term bank is derived from the old Italian word banca, meaning a bench. It referred to the public benches where money changers used to sit for exchanging coins or bills in the marketplace. But it's the goldsmiths of 17th century London who developed banking in its modern form. The goldsmith who used to store wealthy clients'gold in their private vaults soon began to lend this gold to others in exchange of a promissory note and the bank's credit card.
the payment of an interest charge. That was the beginning of banking as we know it today. So what is the general role of a bank? Depositors, or people with money surplus, place their money at the bank in order to earn a return through the credit interest.
Borrowers, or people with a shortage of money on the other hand, are willing to pay interest on the money the bank is lending them in order to accomplish an objective they're seeking. And how do banks make profit? A bank's primary source of revenue comes from the difference between the interest it's paying to depositors and the one it's earning from borrowers.
A bank also makes profit from charging fees or commissions for services granted by the bank to its customers and from investments. Hello So why are banks regulated? Banks collect funds from depositors in the form of small-sized deposits and repackage them into larger-sized loans. Borrowers, on the other hand, might not be able to repay the money they borrowed from the bank. In addition to that, banks sometimes invest deposits in risky assets.
All of these reasons explain the major role of central banks in protecting depositors'money by monitoring the adequate level of riskiness the bank is taking. What is the role of central banks? Central banks oversee monetary policy to implement specific goals such as currency stability, low inflation, and full employment.
They determine the interest rates that influence the bank's pricing schemes and and the economy's money supply. They issue currency and grant authorization to establish banks. Central banks also impose a threshold for capital requirements and place reserve requirements to ensure liquidity in crisis mode.
They shape lending policies through margin requirements and other tools, and they act as a lender of last resort to finance banks that need liquidity. Today, several types of banks exist to answer the different needs of consumers and to give them a choice in the way they manage their money. A retail bank, for example, provides services to individuals.
Commercial and corporate banks serve small to mid-sized businesses and large enterprises. Investment banks are also a great example of this. Private banks specialize in large and complex financial transactions.
Private banks offer a personalized financial and banking service to high net worth individuals. So what do we know today about the future of banking? Direct channels such as mobile and the internet are becoming increasingly important in retail banking as they are in our everyday's life. Customers today expect financial firms to listen, respond and offer services through social media.
Customers across all segments expect highly personalized, convenient and reliable service, along with 24-7 accessibility. Banking is no longer somewhere you go, but something you do.