Banks play an important role in the business cycle. Among other things, they receive savings from private households and provide money to businesses and individuals, for example in the form of loans. For example, they allow investments that help companies develop economically and therefore stimulate the entire economy. Individuals also use bank loans to invest, for example in the construction or purchase of a property, such as a condominium.
A set of activities
In addition to the essential areas of banking, that is, the deposit and loan business, many banks are also active in the securities business, real estate business, international business, management of payment transactions, and credit transactions. foreign exchange. In addition, they offer their clients services such as the assumption of guarantees and surety, asset and portfolio management, and advice on all matters relating to financial transactions. Private clients can, for example, get expert advice on asset accumulation, retirement planning, or real estate financing.
Universal and Specialty Banks
Most banks offer a wide range of products and services, see Chime routing number. They are known as universal banks. There are also credit institutions that specialize in one or a few banking services, the so-called specialized banks. These include mortgage lenders and construction companies. The universal banks have the advantage over the specialized banks in that they have a more stable earnings trend thanks to their various business opportunities. If, for example, the corporate client business is declining due to an economic slowdown, the real estate business or the private client business can generate particularly high profits. Basically, banks generate income through the interest margin, through service fees and commissions, but also through so-called trading on their own account. The interest margin arises when the bank pays investors loan interest on their deposits, but in turn, receives loan interest from borrowers at a generally higher interest rate. Trading for own account refers to the business that a bank does not carry out for clients but on its own account.
Financial services institutions
In addition to banks, there are financial services institutions. You do business that is comparable to that of a bank, for example, investment advice or the issuance of credit cards. Unlike credit institutions, the requirements of the financial market supervisory authority are lower.