Types of Banks

When you are thinking of opening an account in any bank then it is important to be aware of different types of banks working in the market to serve the purpose which any one looks to get the required service.

The Banking industry is having different types of banks who provide loans, leasing, account opening for savings and business purposes. During the last three centuries different types of banks have developed. Each type usually specializes in a particular kind of business.

We can, therefore, distinguish the different banks according to the functions they perform.

Below mentioned are known types of banks;

• Central Banks
• Commercial Banks
• Retail Banks
• Investment Banks
• Industrial Banks
• Agricultural or Co-operative Banks
• Savings Banks
• Microfinance Banks

Central Banks:

The central bank has been described as the “lender of the last resort,” which means it is responsible for providing its nation’s economy with funds when commercial banks cannot cover a supply shortage. In other words, the central bank prevents the country’s banking system from failing.

However, the primary goal of central banks is to provide their countries’ currencies with price stability by controlling inflation. A central bank also acts as the regulatory authority of a country’s monetary policy and is the sole provider and printer of notes and coins in circulation.

Time has proved that the central bank can best function in these capacities by remaining independent from government fiscal policy and therefore uninfluenced by the political concerns of any regime. A central bank should also be completely divested of any commercial banking interests.

Commercial Banks:

A commercial bank is a financial institution that provides services like loans, certificates of deposits, savings bank accounts bank overdrafts, etc. to its customers. These institutions make money by lending loans to corporate business or individuals and earning interest on loans.

Commercial banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner.

A commercial bank accepts deposits in the form of current, savings and fixed deposits. It collects the surplus balances of the Individuals, firms and finances the temporary needs of commercial transactions. The first task is, therefore, the collection of the savings of the public. The bank does this by accepting deposits from its customers. Deposits are the lifeline of banks

Retail Banks:

Retail banks are the most common type of bank for individuals and small businesses as when you think of local bank then it is most likely a retail bank.

These banks are either smaller, local banks or national level banks with branches throughout the country,

Retail banks are commonly referred to as “Consumer Banks” as people use them to do their daily financial transactions.

This type of bank can facilitate everything an individual would need from a financial institution, from daily transactions to personal loans etc.

Investment Banks:

Investment banks are a bit different from the other two on the list.

Their main function is actually to manage the trade of stocks, securities, and bonds between companies and their investors. 

But on the other hand, investment banks act as financial intermediaries and advisors.

These banks often advise individuals and corporations that seek financial guidance.

Investment banks play major roles in the mergers and acquisitions of companies, working to reorganize acquired firms.

Additionally, investment banks manage the investment portfolios of businesses and individuals to raise capital for certain businesses and in some cases the federal government.

Investment banks are not like the Wells Fargo down the street, where you can open a checking account.

These banks are primarily designed for asset management, corporate finance, and trading.

Here are some of the services you can expect to receive from an investment bank.

Industrial Banks:

  There are a few industrial banks in different countries, mainly in Germany and Japan, these banks perform the function of advancing loans to industrial undertakings. Industries require capital for a long period for buying machinery and equipment. Industrial banks provide this type of Mock capital. Industrial banks have a large capital of their own. They also receive deposits for longer periods. They are thus in a position to advance long-term loans.

An industrial bank is a type of financial institution that offers only a limited range of services. Industrial banks accept customer deposits and sell certificates, also known as investment shares. Industrial banks then use the proceeds to make installment loans for consumers and small businesses. Industrial banks do not offer checking accounts.

Agricultural or Co-operative Banks:

The main business of agricultural banks is to provide funds to farmers. They are worked on the co-operative principle. Long-term capital is provided by land mortgage banks, now a days called Agriculture-development banks, while short-term loans are given by co-operative societies and co-operative banks. Long-term loans are needed by the farmers for purchasing land or for permanent improvements on land or purchase of Agri machinery, while short-period loans help them in purchasing implements, fertilizers and seeds.

Savings Banks:

A savings bank is a financial institution whose primary purpose is accepting savings deposits and paying interest on those deposits. They originated in Europe during the 18th century with the aim of providing access to savings products to all levels in the population.

These banks perform the useful service of collecting small savings. Commercial banks too run “savings departments” to mobilize the savings of men of small means. The idea is to encourage thrift and discourage hoarding.

Microfinance Banks:

Microfinance, also called​ micro credit, is a type of banking service provided to unemployed or low-income individuals or group of individuals who otherwise would have no other access to financial services.

Empowering women in particular, as many microfinance organizations do, may lead to more stability and prosperity for families. 

While institutions participating in the area of microfinance most often provide lending—microloans can range from as small as $150 to as large as $20,000. Microfinance banks offer additional services such as checking and savings accounts as well as micro insurance products, and some even provide financial and business education. The goal of microfinance is to ultimately give impoverished people an opportunity to become self-sufficient.