The banking industry is a global, multibillion dollar business that serves as a middleman, or intermediary, between suppliers of financial capital and those seeking financing. Broadly speaking, it provides financing for a wide range of consumer and business activities. The stated purpose may be financing the purchase of a home or providing startup capital for a new business venture. While the banking industry operates according to regional, or nationally defined, rules and customs, the business is most often broken out into two distinct industry groupings: investment banks and commercial banks (which will be covered in this article).
Commercial banks make loans to the full spectrum of borrowers, from private individuals, all the way up to major corporations, and municipal, regional, and national government agencies. Commercial banks, a grouping that also includes savings banks and credit unions, finance their loan activities by lending out money gathered from the other side of the business—the funds deposited by individuals and firms.
Banking in the 21st century is in reality a series of interconnected businesses. The biggest banks in the world have grown to become complex, multi-market organizations serving a very diverse group of customers. Major commercial banks, in addition to their lending services, also offer cash management services such as money transfers and account reconcilement, asset-based financing, and equipment leasing. They issue letters of credit supporting global trade. They offer credit card and payment card services to both individual consumers and retail merchants.
Banking as a business is highly sensitive to market cycles. Demand for bank loans is closely tied to economic activity and interest rates. Banks offer customers different banking services to attract deposits [transaction accounts, savings and time deposits (CDs), money market accounts]. Bank deposits are the financial backing for bulk loans to consumers, busine...