Currently in most jurisdictions commercial banks are regulated by government entities and require a special bank licence to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order, however money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. government owned bank (a central bank). Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case, e.g. in the UK the Financial Services Authority licences banks and some commercial banks, such as the Bank of Scotland, issue their own banknotes in competition with the Bank of England, the UK government's central bank.
Some types of entity may be partly or wholly exempt from bank licence requirements and are regulated by separate regulators, e.g. building societies and credit unions.
The requirements for the issue of a bank licence vary between jurisdictions but typically include:
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
4. Approval of the bank's business plan as being sufficiently prudent and plausible.
Text 7. Banking channels
Banks offer many different channels to access their banking and other services:
• A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face-to-face service to its customers.
• ATM is a computerised telecommunications device that provides a financial institution's customers a method of financial transactions in a public space without the need for a human clerk or bank teller. Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any customer of the bank's account by feeding in the notes and entering the account number to be credited. Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash, even if the card is issued by a foreign bank.
• Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world. This can be used to deposit cheques and to send orders to the bank to pay money to third parties. Banks also normally use mail to deliver periodic account statements to customers.
• Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone. This normally includes bill payments for bills from major billers (e.g. for electricity).
• Online banking is a term used for performing transactions, payments etc. over the Internet through a bank, credit union or building society's secure website.
Text 8. Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profits.
Central banks are normally government owned banks, often charged with quasi-regulatory responsibilities, e.g. supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis.
• Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses.
• Community Banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners
• Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
• Postal savings banks: savings banks associated with national postal systems.
• Private banks: manage the assets of high net worth individuals.
• Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
• Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative, while in others socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralised distribution network, providing local and regional outreach and by their socially responsible approach to business and society.
• Building societies and Landesbanks: conduct retail banking.
• Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
• Islamic banks: Banks that transact according to Islamic principles.
Types of investment banks
• Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions.
• Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.
Both combined
• Universal banks, more commonly known as financial services companies, engage in several of these activities. For example, First Bank (a very large bank) is involved in commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Other large financial institutions are similarly diversified and engage in multiple activities. In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance, hence the term bancassurance is the term used to describe the sale of insurance products in a bank. The word is a combination of "banque or bank" and "assurance" signifying that both banking and insurance are provided by the same corporate entity.
Islamic banking
• Islamic banks adhere to the concepts of Islamic law. Islamic banking revolves around several well established concepts which are based on Islamic canons. Since the concept of interest is forbidden in Islam, all banking activities must avoid interest. Instead of interest, the bank earns profit (mark-up) and fees on financing facilities that it extends to the customers.
