Bank and It's Functioning

What is Bank?

A bank is a financial institution that provides various financial services to its customers, such as deposit-taking, lending, and other related activities. Banks are usually licensed by government authorities and are subject to various regulations and restrictions.

 

Banks offer a wide range of services to their customers, including checking and savings accounts, loans, credit cards, and investment services. They also offer services such as money transfers, foreign currency exchange, and safety deposit boxes.

 

Banks make money by charging interest on loans, fees for services such as account maintenance and overdraft protection, and by investing the money deposited by their customers. They also earn income from the fees charged for processing credit and debit card transactions.

 

Banks are important institutions in the global economy, providing a crucial role in facilitating financial transactions and enabling businesses and individuals to save and invest money.

 

Different Types of Banks

There are several different types of banks, each of which serves a specific purpose and offers unique services. Here are some of the most common types of banks:

1.     Commercial banks: These are the most common type of bank, and they offer a range of services to both individuals and businesses. Commercial banks accept deposits, provide loans, issue credit and debit cards, and offer other financial services.

2.   Investment banks: Investment banks specialize in providing financial advice to companies and governments. They help companies raise capital by underwriting and selling stocks and bonds. They also provide other services such as mergers and acquisitions advice and trading in securities.

3.   Central banks: These are government-run banks that are responsible for managing a country's monetary policy. They control the money supply, set interest rates, and regulate the banking industry.

4.   Savings and loan associations: These banks specialize in accepting deposits and providing mortgage loans to customers.

5.   Credit unions: Credit unions are similar to banks, but they are owned by their members rather than shareholders. They offer many of the same services as banks, but often with lower fees and better interest rates.

6.   Online banks: Online banks operate entirely online, with no physical branches. They often offer higher interest rates on deposits and lower fees than traditional banks.

7.    Cooperative banks: These banks are owned and operated by their members, who are typically individuals or small businesses. They offer a range of financial services and focus on community development.

Each type of bank has its own unique characteristics and services, so it's important to choose the right bank based on your individual needs and preferences.

 Main from of Commercial Bank

Conventional Bank:

 A conventional bank is a financial institution that operates on the basis of interest and makes a profit by charging interest on loans and other financial products. It follows conventional banking principles and practices, which include charging interest on loans, investing in businesses that may not align with certain ethical or social values, and using financial instruments such as bonds and derivatives to manage risk.

Islamic Bank:

On the other hand, an Islamic bank is a financial institution that operates on the principles of Islamic finance, which is based on the principles of Shariah law. Islamic banking principles prohibit charging or paying interest (riba), investing in businesses that are considered haram (such as those related to gambling, alcohol, or pork), and engaging in speculative financial activities. Instead, Islamic banks use profit and loss sharing (PLS) agreements, leasing arrangements, and other financial instruments that comply with Shariah law to generate returns for their customers and shareholders.

Islamic banking also emphasizes social responsibility and ethical business practices, and Islamic banks often support community development projects and provide assistance to the poor and needy. Additionally, Islamic banks may have a board of Shariah scholars who review and approve all financial products and services offered by the bank to ensure compliance with Islamic law.

Basic Function of Commercial Bank

The basic function of a commercial bank is to accept deposits from customers and use those funds to provide loans and other financial services. Commercial banks play an important role in the economy by providing access to credit and financial services that individuals and businesses need to grow and succeed.

Some of the key functions of commercial banks include:

1.     Accepting deposits: Commercial banks accept various types of deposits, including checking accounts, savings accounts, and certificates of deposit. These deposits provide the bank with the funds it needs to make loans and provide other financial services.

2.   Providing loans: Commercial banks provide loans to individuals and businesses for a wide range of purposes, such as purchasing a home, buying a car, or starting a business. Banks earn income by charging interest on these loans.

3.   Issuing credit cards: Commercial banks issue credit and debit cards that allow customers to make purchases and access cash advances.

4.   Providing financial advice: Commercial banks offer financial advice and planning services to help customers manage their money and make informed decisions about investments, retirement planning, and other financial matters.

5.   Offering other financial services: Commercial banks offer a variety of other financial services, such as wire transfers, foreign currency exchange, and safe deposit boxes.

Overall, the main function of a commercial bank is to provide a safe and secure place for customers to deposit their money and to use those funds to provide loans and other financial services that meet the needs of individuals and businesses.

Who are the main concerned party of Bank?

There are several parties that can be considered as the main concerned parties of a bank. These include:

1.     Customers: Customers are the primary stakeholders of a bank, as they provide the deposits that the bank uses to make loans and generate income. Banks are responsible for ensuring the safety and security of their customers' deposits and providing a range of financial services to meet their needs.

2.   Shareholders: Shareholders are the owners of the bank, and they invest in the bank with the expectation of earning a return on their investment. Banks are responsible for generating profits and maximizing shareholder value through efficient operations and effective risk management.

3.   Regulators: Regulators are responsible for overseeing the operations of banks and ensuring that they comply with relevant laws and regulations. Regulators also help to maintain the stability of the financial system by monitoring and addressing risks.

4.   Employees: Employees are an important stakeholder of a bank, as they provide the knowledge, skills, and expertise needed to deliver high-quality financial services. Banks are responsible for providing a safe and healthy work environment and fair compensation to their employees.

5.   Communities: Banks play an important role in the communities they serve, by providing financial services and supporting local economic development. Banks are responsible for being good corporate citizens and contributing to the social and economic well-being of the communities they operate in.

Overall, the main concerned parties of a bank are its customers, shareholders, regulators, employees, and the communities it serves. Successful banks must balance the needs and Interests of these stakeholders to build a strong and sustainable business.

Who is the main concerned party of the Bank?

As I mentioned earlier, there are several parties that can be considered as the main concerned parties of a bank, and the importance of each stakeholder may vary depending on the specific circumstances. However, in general, customers can be considered as the main concerned party of a bank as they provide the deposits that the bank uses to make loans and generate income. Banks have a fiduciary duty to protect their customers' deposits and provide a range of financial services to meet their needs. Therefore, maintaining customer satisfaction is critical for the success of a bank. However, other stakeholders such as shareholders, regulators, employees, and communities are also important and have a significant impact on the performance and reputation of the bank.