Banking-System

A banking system is a group or network of institutions that provide financial services for us. These institutions are responsible for operating a payment system, providing loans, taking deposits, and helping with investments.

Function

Banking systems perform several different functions, depending on the network of institutions. For example, payment and loan functions at commercial banks allow us to deposit funds and use our checking accounts and debit cards to pay our bills or make purchases. They can also help us finance our cars and homes.

By comparison, central banks or systems distribute currency and establish money-related policies. Investment banks or systems conduct trades or deal with capital markets.

Many banks are profit-seeking entities with stockholders. They obtain profits by charging more interest for loans and paying less interest on deposits. For example, a bank may charge a 3.91% interest rate on a 30-year, fixed rate mortgage, but offer an interest rate of only 0.15% on a savings account of $100,000.