The Fundamentals of Banking: Structure, Functions, and Types

The Fundamentals of Banking

Banking has evolved over many years. The word banking comes from the Italian word “banco.”

Definition of a Bank

Banks are the institutions responsible for the custody, loan, or exchange of money. Money is accepted in their own current or deposit accounts.

Core Functions of Banks

The primary functions of banks include:

• Transferring funds for payments.
• Discounting drafts and bills.
• Transferring funds for investments.

Types of Bank Accounts

• When people wish to leave money with the bank for quite a long time, they put the money in a deposit account.
• When a current account is opened, the depositor receives a cheque book.

Bank Services and Payments

In a bank, customers can pay various bills and obligations, such as electricity accounts, gas accounts, taxes, and repay loans plus interest.

Principal Bank Departments

The principal departments of banks are typically:

1. Investing Department
2. Banking Department
3. Loan Department

Major Categories of Banks

Banks are large institutions that deal with several aspects of the economy of countries, individuals, and monetary systems. Not all banks offer the same products or deal with the same type of customers.

Commercial Banks (Clearing Banks)

Commercial banks provide banking services such as accepting deposits (either in current accounts or savings accounts), granting loans, issuing credit cards, and managing their customers' accounts. Another service is the payment of fees, salaries, and wages into the workers' accounts. These banks usually have branches in various locations.

Merchant Banks

Merchant banks give similar services, but not to individual customers; they serve companies or corporate customers. They offer stockbroking and portfolio management services, and they issue and underwrite securities.

Bank Organizational Structure

Banks are complex organized structures with different names for divisions, but there is a basic common structure:

Administration Division:

Deals with all administrative matters, including planning, financial control, etc.

Banking Division:

Deals with loans, syndicate loans, project finance, overdrafts, and documentary credit.

Dealing Division:

Covers foreign exchange, currency, money markets, and bonds.

Corporate Finance Division:

Provides advice to a large number of companies about mergers, takeovers, acquisitions, and divestments, as well as stock market operations.

Investment Management Division:

Provides services to companies such as pensions funds, investment trusts, and offshore funds.

The CEO (Chief Executive Officer) and other department heads are responsible for their specific areas.

Reference: Ordinal Numbers

This list provides common ordinal numbers:

• 1st: first
• 2nd: second
• 3rd: third
• 4th: fourth
• 5th: fifth
• 6th: sixth
• 7th: seventh
• 8th: eighth
• 9th: ninth
• 10th: tenth
• 11th: eleventh
• 12th: twelfth
• 13th: thirteenth
• 14th: fourteenth
• 15th: fifteenth
• 16th: sixteenth
• 17th: seventeenth
• 18th: eighteenth
• 19th: nineteenth
• 20th: twentieth
• 21st: twenty-first
• 22nd: twenty-second
• 30th: thirtieth
• 40th: fortieth
• 50th: fiftieth
• 100th: hundredth
• 1,000th: thousandth
• 10,000th: ten thousandth
• 100,000th: one hundred thousandth
• 1,000,000th: one millionth