A bank is a business that takes money from the public and lends it to customers. It makes a profit by charging interest on loans and earning income from other services, such as financial management products and credit cards. The company may also hold assets that serve as money, such as deposits and securities. Banks are important parts of the global financial system. They play a role in the domestic and international payment systems, create money, and make loans that fuel economic growth.
There are many different types of banks, ranging from local community-based institutions to multinational commercial banks. In addition to varying fees, rates and benefits, they may offer deposit accounts, credit cards, ATMs, online banking, mobile apps, money transfers, bill payments, checks, insurance and other financial services. Some are non-profit, such as credit unions, while others are for-profit companies that are regulated by government agencies, such as the Federal Reserve.
A bank’s primary goal is to earn a profit for its owners, which are typically shareholders. To do this, it needs to attract and keep enough deposits to cover its costs and earn more in interest on loans and other sources of funds than it pays on savings accounts and certificates of deposit. It can also raise funds by borrowing in the money and capital markets or by packaging loans into securities it sells to the market (liquidity transformation and securitization). The risk of losing money is high for a bank, because its failure could have broader effects on the economy, such as halting customer withdrawals or freezing lines of credit that businesses use to pay their bills.
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