Banking

Banking, business of dealing with money and credit transactions. The services offered by banks fall into 4 categories: safe storage, interest-bearing deposit facilities, money transfer, and loans. The nature of safe storage has changed now that most money is held in the form of bank deposits rather than gold or silver coin. Bank branches keep cash available for customers. Most banks also have safe-deposit boxes for storing valuables other than cash. The second basic service arises from the first. Since money given to a bank for safekeeping effectively amounts to a loan to the bank, the bank pays interest on it. Rates vary, depending in part on how much notice the bank requires for withdrawals. The third category of bank services, transfer of money, is carried out mainly by means of checks and credit cards. In making out checks customers authorize the bank to transfer a specified sum from their own account to someone else's (or to pay them in cash). After the check has been handed in or mailed to the bank by the payee (the person to whom the money is to be paid) it is returned to the bank of the person who has writen the check (the payor) through the clearing system run countrywide by the Federal Reserve. Credit cards, in widespread use since about 1970, allow the purchase of services and goods even in places where the bearer is not well known enough to be able to use a check. The final category of bank services, lending to customers, is the most highly developed.

Although basic services are the same from one bank to another all around the world, the details and, in particular, the manner in which they are offered vary considerably. In the United States, state-chartered savings banks and state- or federally-chartered savings and loan associations originally only handled savings deposits and home mortgages, while commercial banks offered checking and a wide range of loans. Recently, however, the distinctions between these institutions have been blurred. In 1913 the Federal Reserve System was set up to strengthen the U.S. banking system. Bank failures in 1933 led to the setting up of the Federal Deposit Insurance Corporation. Since 1974 the banking industry in the United States has suffered from government regulations, increased competition in financial services, and risky investments in real estate, Third World countries, and leveraged buyouts. This has resulted in the collapse of hundreds of banks in 1990 and 1991. As a result, the government has had to face great strain on its bank insurance fund. Banking and the financial services industry are now in a state of transition and restructuring to meet the financial demands of the 21st century.