A Bank is a financial institution licensed to accept deposits and make loans. It is a business that protects cash from theft and natural disasters such as fires and floods, while earning income by lending it to those who want to buy cars or houses, start businesses or make other purchases.
Banks are also at the center of our payments system. They process payments, from the smallest personal checks to large-value electronic transfers between banks. Banks also lend and recycle excess money in the financial system, and create and trade securities. They earn interest on their loans and securities, fees for customer services such as checking accounts, financial advice and loan servicing, and from the origination, distribution and sale of other financial products like insurance and mutual funds.
While governments don’t directly own or operate banks, they use them to accomplish a wide range of economic policy goals, from raising the money supply to promoting social and local development. To do so, they require banks to have government-issued charters and to be eligible for backstop facilities (emergency loans from central banks and explicit guarantees of bank deposits up to a certain amount). They regulate and supervise banks to ensure their safety and soundness, and impose rules that balance the needs of banks against those of the economy at large. They may encourage or discourage specific types of lending, such as encouraging home ownership or limiting discriminatory lending, and they decide where to issue new bank charters.
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