TYPES OF BANKS

A bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money. Many other financial activities were allowed over time. The principal types of banks in the modern industrial world are commercial banks, which are typically private-sector profit-oriented firms, and central banks, which are public-sector institutions.

The central bank is at the centre of the financial structure of any country (in Ukraine it is the National bank of Ukraine, in the USA – the Federal Reserve System, in the UK – the Bank of England, in Germany - the Bundesbank, etc). It is the most important bank in the country because it issues and manages currency, influences the base lending rate and helps to carry out the government’s financial policy. Central banks can be either privately owned or owned by the government. In Europe, central banks are owned and operated by the government. In the United States, commercial banks own the central bank, the Federal Reserve.

Commercial banks constitute the second level of the banking system. There are many different terms used, not all mutually exclusive. Let's examine the following:

·        Retail banks

·        Merchant / investment banks

·        Savings banks

·        Offshore banks

·        Cooperative banks

·        Mortgage banks

·        Universal banks

Retail banks (also called high street banks) deal directly with individuals and small businesses. They focus on mass market products such as current and savings accounts, mortgages and other loans, and credit cards. These banks have the large branch networks in the high streets of cities and towns, in the shopping centres, college campuses, etc.

Investment Banks / Merchant Banks. (Merchant bank is a classic UK term. Investment bank is the US equivalent.) Investment banks deal mainly with rich corporate clients (companies or large firms) or rich individual clients. They aim not so much at lending money but at raising funds for industry (their corporate clients) in different financial markets. They also provide corporations advice on mergers and acquisitions. Therefore investment banks act mainly as intermediaries for their customers. They do not themselves make loans, but make their profits from fees paid for their services. Merchant banks in Britain do the same, but they also offer loans themselves.

Savings banks specialize in providing savings accounts as opposed to general banking services. Postal savings banks are associated with national postal systems.

Offshore banks are based or registered abroad, usually to avoid tax laws. Some depositors seek the services of these banks for their easy access to deposits, less restrictive legal regulation, and increased privacy for the depositor. It is believed that as much as half of the world's capital flows through offshore centers.

A cooperative bank is a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank. Cooperative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Cooperative banks generally provide their members with a wide range of banking and financial services.

Mortgage banks generally specialize only in making mortgage loans. They do not take deposits from customers.

Universal banks, also known as financial services companies, are large banks engaged in multiple activities from commercial and retail lending, offshore banking to customers in other countries through its subsidiaries to the sale of insurance products.