Types of Bank with Definitions
An institution which is financial in nature and is licensed for receiving funds, managing withdrawals, and making loans is called a bank. Banks can be of several types depending on their functions. Here you can get a clear idea on the most important types of banks with definitions and description. The names of the different types are as follows:
Types of Bank
- Retail Banks
- Commercial Banks
- Central Banks
- Investment/ Industrial Banks
- Agricultural Banks
- Co-operative Bank/ Mutual Bank
- Foreign Exchange Banks
- Exchange Banks
- Online Banks
- Credit Unions
- Private Bankers
Each of the types is discussed below:
You are probably most familiar with this type of banks. You may have your savings or checking accounts in a retail bank. A retail bank’s focus is on their consumers or on the public for making them, potential customers. You can get loans, credit cards and debit cards from these banks. These banks have numerous branches in different locations of populated areas. According to Statista world’s third top retail bank was China Construction Bank in February 2017.
Business customers are the focus of the commercial banks. Businesses also need savings and checking accounts as the individuals do. But their nature of services is more complex and amounts of the money or transaction numbers can be quite larger. They may require accepting customer payments, depending heavily on lines of credit for managing cash flow, and may use letters of credit for doing business overseas. Commercial banks accept different types of deposits such as current deposits, savings deposits, seasonal deposits, fixed deposits, recurring deposits, etc. Businesses can get several types of advances and loans from commercial banks such as loans, overdrafts, cash credits, and discounting bills. As per Investopedia, Industrial and Commercial Bank of China was the top commercial bank in the world in April 2017.
A government’s monetary system is managed by the central banks. Every country has a central bank. As for example, The United States has the Federal Reserve Bank as the central bank and Bangladesh has Bangladesh Bank as its central bank. The central bank’s functions are non-profit in nature. The Central bank is the regulator, controller, and supervisor of the functions of the country’s commercial banks and other financial institutions. Central bank functions as a banker to the banks and to the government, controls credit, issues notes and maintains the reserves for gold and foreign exchange of the country.
Investment /Industrial Banks
Businesses work in the financial markets with the help of investment banks. A business which has the desire to go public or sell debt securities to investors, often uses an investment bank. The industrial bank is another name of the investment bank. AB Bank, Agrani Bank, Bangladesh Development, Bank Asia, are some of the investment/industrial banks of Bangladesh. Long-term deposits are accepted by investment banks from the public. Investment banks issue debentures and shares to secure capital. As per Investopedia, Goldman Sachs (GS) headquartered in New York is the top investment bank of the world in 2019.
Read More: Types of Bank Accounts with the Description
Banks providing agricultural loans to the farmers are the agricultural banks. These banks offer medium-term and long-term loans. The government establishes agricultural banks for promoting agricultural credit or loan in the country.
Co-operative Bank/ Mutual Bank
The banks usually providing short-term, medium-term and long-term loans for agricultural purposes are known as co-operative banks. Small-scale artisans also get loans from co-operative banks. The interest rate of loans is cheaper in these banks. These banks can be seen both in rural and urban areas. The mutual bank is another name of co-operative banks. Bangladesh Samabaya Bank is the apex co-operative bank in Bangladesh.
Foreign Exchange Banks
The specialized banks providing finance for foreign trade are known as foreign exchange banks. Deposits are accepted by these banks from the public. Generally, these banks have branches in different foreign countries to ensure their services in an uninterrupted way. But recently commercial banks are performing this task too. Bank of America Merrill Lynch is one of the top foreign exchange banks of the world.
The country’s imports and exports are financed by exchange banks. These banks mainly provide foreign exchange to the customers and assistance to develop international trade. They give a discount for foreign bills of exchange to the customers too.
The banks which function completely online and have no physical branches where the customers can visit are called online banks. Many banks having physical locations also provide online services like viewing accounts and paying bills online, etc. But online banks are different. These banks sometimes give competing rates on savings accounts and they especially provide free checking. Ally Bank of the United States has become the top among the online-only banks in 2019.
Credit unions and banks are similar, but these are customer-owned non-profit organizations whereas banks are mostly investor-owned. Products and services offered by credit unions are mostly identical to those of commercial and retail banks. The members of credit unions have some common characteristics such as their area of living, their working place, their occupation, etc.
The individuals doing banking business individually or on a partnership basis are known as private bankers. This sector is purely unorganized. The private bankers mostly don’t accept or receive any deposits from the public. They perform banking business using their own capital. People get loans from them at high rates of interest.
In this way, banks can be classified based on their specialized activities. But nowadays commercial banks perform functions of agricultural banks, they are also providing finance for businesses and investment banks. Commercial banks have even expanded their area of function to foreign exchange and thus performing the function of foreign exchange banks. Hence, commercial banks have raised their capabilities to attract more customers.