What Is A Bank?

A bank is an institution that is licensed to receive deposits and provide loans to consumers. They also provide financial services, such as insurance and wealth management plans, currency exchange and safe deposit boxes, The banking industry is the entity that handles cash, credit, and other financial exchange. The primary role that they play for consumers is to provide deposit accounts and grant loans. 

How does banking in the Philippines work?

Financial products range from deposit accounts, high-end financial services such as home loans, to investment products. Other services provided by banks include

credit cards, loans, and checking accounts. 

What Are The Types Of Banks?

Commercial/Retail banks   

Commercial banks are financial institutions that provide basic financial services such but not limited to deposit accounts and loans. There are various subtypes of commercial banks, and the most common are the following:

Investment banks

An investment bank (IB) is a financial intermediary that performs complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients.  In other words, these are banks that provide investment opportunities such as stocks, bonds, and mutual funds. 

Role of banks in the economy

Banks are not just vital for the individual financial management of consumers, it also serves a greater purpose to the grander scheme of things – the economy. 

1. Banks promote capital formation

Course funds to provide financial resources to businesses in the form of loans. Fostering the growth of locally based businesses will lead to economic growth. 

2. Investment in new enterprises

Commercial banks make it easy for SMEs or budding entrepreneurs to acquire the loan they need to jumpstart their business. The provision of timely credit increases the productive capacity of the economy.   

3. Promotion of trade and industry

With the growth of commercial banking, there is a vast expansion in trade and industry.

The use of services like a bank draft, check, bill of exchange, credit cards and letters of credit have revolutionized both national and international trade.

4. Development of agriculture

Commercial banks, particularly in developing countries, are now providing credit for the development of agriculture and small scale industries in rural areas.  The provision of credit to the agriculture sector can greatly help raise agriculture productivity and income of farmers. 

5. Balanced development of different regions

Banks are vital in transferring surplus capital from developed regions to the less developed regions. Through banks, traders, industrialists and entrepreneurs in less developed regions can get adequate capital for meeting their business needs. This, in turn, increases investment, trade and production in the economy.     

6. Influencing economic activity

The banks can also influence the economic activity of the country through 

• Availability of credit
• The rate of interest

If the commercial banks are able to increase the amount of money in circulation through credit creation or by lowering the rate of interest, it directly affects economic development. A low rate of interest can encourage investment. This credit creation activity can raise aggregate demand which leads to more production in the economy.       

7. Implementation of monetary policy

The central bank of the country controls and regulates the volume of credit through the active cooperation of the banking system in the country. This determines price stability and promotes economic growth within the shortest time.

8. Monetization of the economy

The non-monetized sector (barter economy) is now mostly converted into the monetized sector with the help of banks.  The use of money has vastly increased the volume of production of goods. 

9. Export promotion cells

In order to increase the exports of the country, the commercial banks established export promotion cells. It provides information about general trade and economic conditions both inside and outside the country to its customers. 

The role of banks in your daily life 

Banks have three main functions :

1. Safekeeping of consumers’ money
2. Manage and regulate payment systems – retail and online 
3. Provision of financial products (loans) to both consumers and businesses