A Banking Industry Tutorial
History of the Banking Industry
The original purpose of a bank was purely business related, providing trading companies and other businesses with loans. Many businesses used these loans to purchase their inventory and upon the sale of such goods, repaid the bank all of the funds plus interest. For centuries the banking industry focused only on such business transactions before shifting its focus to include personal services to individuals. The first state deposit bank was founded in 1407 in Genoa, Italy.
Organization of the Banking Industry
In America there are several types of banks which each offer slightly different services or benefits to various prospective clientele. These banks include commercial banks, savings banks, credit unions, and Federal Reserve banks. There are some differences in the organization or the function of each of these four types of banks, as outlined below.
- Commercial banks are the most numerous in the banking industry and offer services to individuals and businesses as well as governments and overseas clientele. Commercial banks range in size, the smallest serving communities with basic banking needs, while the larger banks reach to larger demographics and may be involved in international banking. Commercial banks offer savings, checking, money market, and CD accounts and may be a good option depending on your needs and location.
- Savings banks are the second most common type of bank in America and focus mainly on communities and small regions. Savings banks' original purpose was to finance loans in order to help people purchase homes; this is still a main function of savings banks today.
- Credit unions are formed by people united by a common bond such as those working for the same employer or those who are members of the same labor union; credit unions are owned by their members. Every member must open a "shares account" which is essentially a savings account, but which gives every member partial ownership of the operation of the credit union. Credit unions are often able to offer lower interest rates on their loans than those offered by other banks. In addition to the different kinds of credit unions that exist, many states offer a State Employees Credit Union to serve those who are employed by the state.
- Federal Reserve banks are run by government agencies and provide services for the government. The main function of a Federal Reserve bank is to regulate the banking industry and maintain efficiency in the economy by controlling the nation's money supply.
The simplest way to get involved in the banking industry is to open a savings or checking account. Aside from being an active participant in a bank through your accounts, there are also employment opportunities. Banks in America employ many people; in 2006 the banking industry employed around 1.8 million wage and salary workers and around 70% of those jobs were in commercial banks.