Banks are institutions that primarily exist to provide financial services to corporate clients and private customers. They do this via accepting deposits of funds (whether money, commodities such as gold or financial instruments such as stocks and shares) and lending out funds (to both businesses and individual consumers).
High Street Banks
The banks that provide banking services – including consumer credit – to the general public and ordinary businesses are known as high street banks. These banks include most of the big names familiar to the average consumer. The primary service that high street banks offer is the provision of bank accounts, financial products which allow bank customers to deposit funds and make payments. In addition to this, banks usually offer a wide range of additional services, which could include offering bank loans, mortgages, overdrafts, credit cards, share dealing services, home insurance, safe deposit boxes and more; indeed, the amount of lending services banks undertake means they are often referred to as ‘lenders’. Many banks offer discounts to customers that take out multiple products with them, so anyone looking for a bank should consider which services they require and compare what banks offer to find which bank can offer them the best deal overall. In addition, each borrower and saver should compare the interest rates of different banking products.
Personal banking is a service that has become much more popular in recent years. It involves customers receiving a more highly personal service from their banks, with the provision of products and services aimed specifically at them. Most banks offering personal banking will offer the customer a named account manager who they can contact if they require further services or encounter problems with their account.
Private banking is a step up from personal banking, and is only available for high net worth individuals. It involves wealth management, with personal account managers assisting account holders in getting the best return on any funds, stocks or property they own. This often involves management of the account holder’s tax affairs.
A major change in banking services in recent years has been the introduction of online banking. Online banking services allow customers to access most of the services they would normally expect from their bank through the World Wide Web, and while they cannot deposit cash directly, they can usually make payments, transfer funds, apply for overdrafts, set up direct debits and more. This has enabled customers to have a much greater control over their finances.
Whereas high street banks offer services to the public and to standard businesses, merchant banks offer services to companies that need to raise capital in the form of stocks and shares rather than cash. As a result of this, merchant banking services tend not to be offered to individual consumers or small businesses.
Investment banks are often involved in merchant banking, but in addition are generally involved in a range of other activities, including the trading of currencies and commodities, the trading of complex financial instruments such as derivatives, the servicing of corporate debt and the handling of company mergers, acquisitions and share issues. This means investment banks generally only serve clients that hold substantial funds and/or equity, whether private individuals or companies. Many of the world’s largest banks are investment banks.
Ownership of Banks
Although in the past many banks were state-owned, the vast majority are now private organisations, many of which are PLCs (Public Limited Companies) traded on the stock exchange.
After the financial crisis of 2008, though, this changed with some banks in the United Kingdom and in other countries being brought into public ownership due to the fact that they were about to collapse; in effect this has led to the UK government acting as lender to many private individuals and small companies through the services provided at nationalised banks. Most of these banks are in the process of being prepared for a return to private ownership, but in some cases this may take many years to achieve.