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A bank is a business that borrows from its customers on current accounts repayable to its customers' cheques and collects cheques for its customers' accounts. Banks may also issue banknotes, and lend money to customers on current account (called overdraft), accept term deposits and make term loans and provide other financial services. Banks that issue notes are called Banks of Issue.
Currently in most jurisdictions the business of banking is regulated and banks require a licence. Banking licenses are granted by bank regulatory authorities and provide rights to conduct the most fundamental banking services such as accepting deposits and making loans. There are also financial institutions that provide certain banking services without meeting the legal definition of a bank, a so called non-banking financial company. Banks have a long history, and have influenced economies and politics for centuries. The word bank is derived from the Italian banca, which is derived from a Germanic language and means bench. The terms bankrupt and "broke" are similarly derived from banca rotta, which refers to an out-of-business bank, having its bench physically broken. Money lenders in Northern Italy originally did business in open areas, or big open rooms, with each lender working from his own bench or table. Traditionally, a bank generates profits from transaction fees on financial services and from the interest it charges for lending. In recent history, with historically low interest rates limiting banks' ability to earn money by lending deposited funds, much of a bank's income is provided by overdraft fees and riskier investments. Types of banks Banks' activities can be characterised as retail banking, dealing directly with individuals and small businesses, and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit making. In some jurisdictions retail and investment activities are, or have been, separated by law. Central banks are non-commercial bodies or government agencies often charged with controlling interest rates and money supply across the whole economy. They act as Lender of last resort in event of a crisis. |
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