Banking Industry

The banking industry plays a key role in an economy. The deposit-taking and lending side of the banking industry needs no explanation. What is new about the banking industry, however, is their push into new territories.

How the banking industry has changed.

The banking industry has broadened its scope. In addition to traditional banking products and services, banks in many countries have begun to sell insurance products and securities. Indeed the breaking down of the regulatory wall between investment banking and commercial banking in many parts of the world has helped transform commercial banks into universal banks. Indeed deregulation has erased the traditional distinction between banks, insurance companies, and securities firms.

The old classification of banks still remains as banks have ventured into new territories even while protecting their traditional domains. Consequently, banks continue to be identified by their traditional strengths.

Most global banks in the banking industry now fall in the commercial banks category. Commercial banks offer traditional banking services to individuals, businesses, and governments. The commercial bank universe is populated by large global banks, community banks and regional banks. The leading commercial banks operate across the globe. These banks are active in cross-border lending and foreign-currency trading besides offering traditional banking services.

What does the banking industry now offer?

The operations of regional banks in the banking industry are limited to a geographic region while community banks are more focused on a particular community or a locality. The expanding reach of Internet has added a new dimension to the banking industry: online banking. Now most banks offer the facility to transact over the Internet. Furthermore, the Internet has given rise to online banks, whose operations are limited to the web.

Other institutions that offer banking services include savings and loans associations as well as credit unions. The savings and loans associations or thrift organisations started out financing home mortgages and progressed to providing savings and lending facilities to individuals. Credit unions, meanwhile, are communities bound by a common thread such as working in a same company or belonging to a religious institution. The members of credit union pool their savings and lend to the needy members at a low rate of interest.

The banking industry earns its livelihood through two principal activities:

• fund-based activities
• fee-based activities.

The fund-based activities of the banking industry include primarily accepting deposits from the public and lending them to individuals and companies. In addition, banks provide fee-based activities such as investment advice.

Irrespective of the constitution and type of offerings, all entities providing banking services in a particular country come under the purview of its Central Bank, which besides regulating the banking industry, controls the money supply. The Central Banks also double up as a lender of last resort for banks.

In recent years the banking industry has seen many countries having to tighten banking regulations to protect the integrity of their banking systems. Technology, which has allowed banks to improve business, is also helping in complying with new regulations. Currently, the banking industry is undergoing seismic changes which promise to radically change banks and the services that they offer.