Basic Banking FunctionsThe banks basic functions are as follows:
· The funds are collected from public.
· Making defense for the funds.
· The funds could be transferred by the person without leaving their banks to another person (the transfer could be done in many ways some are making it through cheques or with the automatic transfer through banking system or others using internet. etc.)
· Other parties could lend money so that it could gain return or else reward that is called interest.
The loans that the banks made are based to the amount of the funds that was held at the bank anytime, The account sums are taken after the owner required to held the case in reserve checking the funds every time.
These loans are made on a place with proper security so that in case of default it is secured. The interest that have been received was shared with the banks (for example the funds was manage for the income) and with the owner. (The true reward of an owner is the interest’s share, which could be paid for but not using their money).
Therefore the bank is an institution that dealing with money, and provided the needs of other financial services. Banks accepts money for the deposit of customers and makes loans out of the funds and makes profit. The profit comes from interest that the customers they pay since they own the funds and the interest that the borrowers pay them.
In the world economy as well as on any country’s economy, banks are essential. Making profit using the funds that was given to them to administer is the main function of the bank.
Actually what happen to them?
When the money is deposited on the bank, in a big pool they transfer it, the same with the money of other depositors, and using this pool the money is distributed to the borrowers and they generate it to make income for interest. If a person makes withdrawal or write out a check, the bank will deduct the amount on your account balance. And if you leave the fund that you have deposited in that bank the bank will lend your fund out and make interest with it and add the portion of interest on you account by the bank.
The banks make money by allowing other parties to make loans on them. The banks that are allowed to lend money is under control of the Federal Reverse Bank. The control allows only the banks to lend out the balance of their funds and hold the required percentage.
How can banks make money?
Money maker banks lend the money of their customers with interest and charge the money of their customers for the service that has provided. They have their own objectives before lending your money out and it is the making income for them also, and their only responsibility is to play with your money and maintain its security. They need to have a good liquidity position if the customer wants to draw out their money and they should have to maintain it.
Sometimes the positions of the liquidity with profitability are opposite- you cannot have them both at a time. If you allow the bank to lend your money in a long period of time then you can earn lot of interests. But banks do not allow their customers to lend their money so much and to have access on the cash when they want it.
The banks operation is running just like the business since they are truly a business in nature. The product of the business may come in machinery or pieces of equipment, clothing or foods while the product of the bank is money or cash. They make loans and other product types of financial to sell your money in the form of it. They charge interest on the money to get fees so that they could pay the money of their customers that they use.
The main key to pay back the money of their customers they should have to get income from the interest from the lending money out of the bank, and it the interest should be more than the money they have to pay for the funds (to the customers who allows that the deposited funds would be lend out).
Revenue in big amount that should be generated is the charge of the banks to the fees. In past days only a portion of the income of bank in a small amount that has come from the fees but it has gone.
Currently, the bank earnings is made up of substantial bulk from the bank fees, and in every service they charge a cost, whether the transaction is in electronic or else making withdrawal from the machine of ATM, or making a permit to transfer from one Internet banking system to another. The incomes of bank fees are increasing up to multi millions but still they make sources that the customers would feel annoying and aggravating.
The return is another income in large source for the bank that comes from securities and investment of the customers. These banks purchase other kinds of products using the funds from the bank that they hold, just like an equity or business shares. Making use of this could generate profit that could be received for many ways by the banks in dividends etc. soon the bank notes would obsolete. When this things would happen, the nature of money would change and would have effects in significant for the society.
