organization, usually a corporation, that accepts deposits, makes loans, pays checks, and performs related services for the public. The Bank Holding Company Act of 1956 defines a bank as any depository financial institution that accepts checking accounts (checks) or makes commercial loans, and its deposits are insured by a federal deposit insurance agency. A bank acts as a middleman between suppliers of funds and users of funds, substituting its own credit judgment for that of the ultimate suppliers of funds, collecting those funds from three sources: checking accounts, savings, and time deposits; short-term borrowings from other banks; and equity capital. A bank earns money by reinvesting these funds in longer-term assets. A commercial bank invests funds gathered from depositors and other sources principally in loans. An investment bank manages securities for clients and for its own trading account. In making loans, a bank assumes both interest rate risk and credit risk; market rates may rise above the Net Interest Margin (NIM) a bank earns on its loan portfolio and investments, and borrowers may default.
In addition to their role as credit intermediaries, banks act as agents for customers in a number of bank-related functions: initiating payment orders to third parties, either by check or electronic funds transfer; purchasing or selling securities, as for a trust account customer; and operating cash management for corporate customers. These noncredit services are an important, and growing, source of fee income. Banks also offer safe deposit boxes; manage trust accounts for individuals and endowment funds; clear checks and drafts for other financial institutions; underwrite securities through securities act of 1933 and, in general, perform other bank related services as permitted by federal and state banking regulations. Advances in the financial services industry occurring since the mid-1970s allow consumers to get banking services from many different financial institutions, such as savings account, Federal Savings Bank (FSB), savings and loan association and credit union, in addition to commercial banks. Savings banks, S&Ls, and credit unions (known collectively as thrift institution) make auto loans, consumer loans, and residential mortgages, and offer checking accounts and Negotiable Order Of Withdrawal (NOW) Account, competing openly with commercial banks. Financial modernization has also removed many of the key functional distinctions between commercial banks and investment banking companies. Commercial banks are permitted by the gramm-leach-bliley act of 1999 to deal in securities, offer investment advisory services, and perform other functions related to banking through subsidiary companies.
business entity formed to maintain savings and checking accounts, issue loans and credit, and deal in negotiable securities issued By government agencies and by corporations. Banks are strictly regulated and fall into the following three categories according to the legal limitations upon their activities: commercial bank; Savings And Loan Association (S&L); savings bank.
temporary computer file used to hold adjustments that have been made to file records until those adjustments are made to the mainfile during the scheduled update. A bank is necessary only to batch systems, which periodically update the mainfile, in contrast to online systems, which continuously update the mainfile.
