Banks keep your money safe and lend it to you when you need it. They also help the economy run smoothly by helping businesses and individuals pay for things. They’re more than just places to deposit and save money, however, and there are a number of different types of banks. You’ll want to choose the one that best meets your financial needs based on the type of financial services you use, interest rates, fees and convenience.
Typically, governments regulate banks. The regulations cover a wide range of issues, such as permitted practices and how much banks can charge for services like loans or credit cards. They can also enforce policies by requiring specific lending or investment in certain regions or communities. For example, the federal government has a program that gives special loans to community development projects.
In addition to regulating the financial industry, governments play a role in choosing the banks that are eligible to operate. They usually require all banks to be insured by the government-backed Federal Deposit Insurance Corporation (FDIC). They may also issue charters that authorize banks to engage in certain activities. Banks are a major part of the economic system, and their failure can have wide-reaching consequences for customers, other banks, and the market.
Banks make a profit by charging more interest on loans than they pay on savings, as well as from fees charged to card holders and transaction fees for merchants who accept their payments. They also trade shares, foreign currencies and commodities such as oil or gold in the financial markets.
About the Author
