The bank is an industry that deals with cash, credit, and other financial transactions for individuals and businesses alike. It provides the necessary liquidity for families and companies to invest in the future, which is one of the main drivers of the U.S. economy.
Definition and Examples of Banks
A bank consists of several activities that can be performed through a number of financial institutions that accept deposits from individuals and other entities, then use these funds to provide loans, invest, and generate profit.
A Special Type of Bank
Commercial banks provide services to individuals and businesses. A commercial bank offers credit, deposits, and money management for individuals and families.
Notable Events
The banking sector saw a period of less regulation when Congress repealed the Glass-Steagall Act. This law prevented commercial banks from using safe deposits for risky investments. After its repeal, the lines between investment banks and commercial banks faded. Some commercial banks began investing in financial derivatives, such as mortgage-backed securities. When these investments failed, a panic erupted among depositors.
The laws regarding banking regulation also changed due to the Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994. The law removed restrictions on interstate branching. This repeal allowed large regional banks to become national. Large banks swallowed smaller ones in competition for market share.
By the 2008 credit crisis, a few large banks controlled most of the assets of the banking industry in the United States. This consolidation led many banks to become “too big to fail.” The federal government was forced to bail them out. If it hadn’t, the failure of the banks would have threatened the U.S. economy itself.
Lessons Learned
Banks provide services, products, savings services, loans, and investments for individuals and businesses. There are many types of banks or financial institutions, each with specialized functions and specialties. Banks are regulated at the national level by the central bank – the Federal Reserve in the United States – which works to maintain liquidity and economic stability. If unregulated banks are allowed to compete in an open market, it has been historically proven that they pose risks and lead to many financial crises.
Source: https://www.thebalancemoney.com/what-is-banking-3305812
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