What is Bank and how it works ?

The United States banking system is a dual system that includes regulation and oversight at both the state and federal level. You may notice the word "national" or "state" in a bank's name.

Banking is one of the key drivers of the U.S. economy. Why? It provides the liquidity needed for families and businesses to invest for the future. Bank loans and credit mean families don't have to save up before going to college or buying a house.

The depositing customer gains a small amount of money in return (interest on savings), and the lending customer pays a larger amount of money to the bank in return (interest on loans). To make money for itself, the bank keeps the difference.

Companies use loans to start hiring immediately to build for future demand and expansion.

This nomenclature has nothing to do with the bank's physical location. Instead it has to do with how the bank was chartered. National banks are charted and regulated by the Office of the Comptroller of the Currency. State banks are chartered and regulated by the individual states' banking department.

It can be quite difficult to understand banking, since banks are very different from most other businesses. For one thing, they are highly leveraged, with more than $20 in debt for every $1 of equity.

Banks are a safe place to deposit excess cash. The Federal Deposit Insurance Corporation insures them. Banks also pay savers interest rates or a small percent of the deposit.

Also, It can be hard to understand what banks actually do, since they don’t make any real products. And a lot of people seem to think that banking is “free”, probably because banks keep advertising free checking accounts, free direct deposit, free bill payment, etc.

Banks can turn every one of those saved dollars into $10. They are only required to keep 10 percent of each deposit on hand. That regulation is called the reserve requirement. Banks lend the other 90 percent out.

Banks attract depositors by offering to pay interest on funds held on deposit. They then pool the funds of all of their depositors and lend those funds to qualified borrowers at a higher interest rate. The bank earns money on the spread between the rate of interest it pays out and the rate of interest it charges. Bank regulations require banks to maintain a set level of capital to satisfy the needs of demand depositors, i.e., those who have their deposits in accounts that can be readily accessed, such as passbook savings accounts and checking accounts. Occasionally a bank may run low on ready cash and need to borrow short-term funds from a Federal Reserve bank.

To fully understand how banks in the US make money, you need to understand a little about the history of banking in the US. Traditionally, banks made money by borrowing from depositors at low interest rates, lending that money at higher interest rates to borrowers, and pocketing the difference.

They make money by charging higher interest rates on their loans than they pay for deposits.

These loans are made at a low interest rate, commonly referred to as the Federal Reserve discount rate.

Open market operations occur when the Fed buys or sells securities from its member banks. When it buys securities, it adds to the money supply.

Banking used to be heavily regulated, and the joke was that it was a 3-6-3 business; borrow money at 3%, lend it at 6%, and be at the golf course by 3 pm. Most banks also charged a monthly fee to customers for maintaining a basic account, but most daily transactions were free. But, overall, fees were low, constituting only 30% of total revenues.

Two things ended up happening: banks realized that the bigger they were, the more loans they could make. With deregulation, the big banks grew even bigger by acquiring smaller banks. Banks also realized that the easiest way to make more money was to simply charge consumers more fees.

Between 1980 and 2000, the banking business doubled. If you count all the assets and the securities they created, it would be almost as large as the entire U.S. gross domestic product.

In fact, the best way to make money was to call a product “free” by eliminating any monthly fees, and then charging lots of fees on transactions.

The two largest banks did the best. Citigroup assets rose from $700 billion in 1998 to $2.2 trillion in 2007. It had $1.1 trillion in off-balance sheet assets. Bank of America grew from $570 billion to $1.7 trillion during that same period.

The two largest banks did the best. Citigroup assets rose from $700 billion in 1998 to $2.2 trillion in 2007. It had $1.1 trillion in off-balance sheet assets. Bank of America grew from $570 billion to $1.7 trillion during that same period.

The first service that most people become familiar with in terms of a bank is a savings account. At first glance, a savings account is a situation in which you give a bank your money for a period of time, withdraw it whenever you like, and it earns a small amount of money for the time you leave it there.

Banking is an industry that handles cash, credit, and other financial transactions.

Banks provide a safe place to store extra cash and credit. They offer savings accounts, certificates of deposit, and checking accounts. Banks use these deposits to make loans.

they take the money you loan them and earn a pretty strong return with it, then give you a part of that return in the form of interest. So, each dollar you put into your account with the bank makes them a little bit of money.

These loans include home mortgages, business loans, and car loans.Banking is one of the key drivers of the U.S. economy.