A bank is a financial institution that keeps people’s money safe and lends it to them, usually charging interest. It has served as a cornerstone of our economic system for millennia, and although it’s changed in technology and structure it remains essential to our daily lives. This article will explore how it works and why it’s important.
Lesson Two: Banks, Thrifts & Credit Unions – What’s the Difference?
Most of us think of banks as a place to store money. Savings accounts, checking accounts and certificates of deposit are all ways that we can keep our money in the bank to protect it from theft or fire and earn a little extra through interest payments. But a bank’s true function goes much deeper.
Banking is a critical part of our economy and provides many services to consumers, businesses, communities and society as a whole. The most basic service is taking deposits and making loans, but a modern bank can also perform other functions including facilitating financial intermediation (matching up creditors and borrowers), acting as a source of liquidity in the money and capital markets, and providing investment advice.
Banks are profit-making private enterprises, though some are owned by governments or nonprofits. They are regulated at the state and federal levels to ensure their operations are sound. Like other businesses, they can fail, but when they do it has broader consequences than for most firms; customer deposits are frozen and loan relationships break down. A bank’s failure can lead to problems throughout the market and can even contribute to other financial crises.