Banking Industry Value Chain: Basic Functions in Banking

Banking Industry Value Chain: Basic Functions in Banking

Banks are commercial institutions and need to increase their business. Unlike other stores and shops, banks are selling services rather than products. Learn how banks get their funds and how they make money on services. Banks and other institutions play this critical role by performing services essential to the functioning of an economy. Safeguarding, transferring, lending, and exchanging money in various forms, along with evaluating credit-worthiness of customers, are the main functions that banks perform. Learn more about the role that banks play in shaping the economy.

Banks are commercial institutions and need to increase their business. Unlike other stores and shops, banks are selling services rather than products. Learn how banks get their funds and how they make money on services. Banks and other institutions play this critical role by performing services essential to the functioning of an economy. Safeguarding, transferring, lending, and exchanging money in various forms, along with evaluating credit-worthiness of customers, are the main functions that banks perform. Learn more about role that banks play in shaping economies.

Distribution of Funds:

Banking Dollars teaserMoney is a medium of exchange and the basis of the modern economy. Banks play a huge role in the distribution of funds throughout society. Although there are many institutions involved in the movement of money today, banks remain fundamental to the flow of money that maintains local, national, and global economies. Banks and other institutions play this critical role by performing services essential to the functioning of an economy. Safeguarding, transferring, lending, and exchanging money in various forms, along with evaluating the creditworthiness of customers, are the main functions that banks perform. Each of these roles has a ripple effect in the economy that helps keep money moving.



keeping your Money Safe:

Banking Lockers teaserSafeguarding the holdings of people may be the oldest bank function. Long before banks existed, people looked for ways to secure their valuables, whatever the medium of exchange. Many of these you may easily imagine. In some societies, such as Babylonia about 2000 B.C., people began to store money in temples, perhaps because they thought others would be less likely to steal from houses of gods. Ancient records indicate that about 4,000 years ago temples were in the business of lending and exchanging money. At that time, temples were acting as banks. You may think of a bank vault or a safe-deposit box when you think of safeguarding money, and those on- site measures are certainly ways of protecting valuable assets. Yet there is much more to safeguarding money than simply storing it in a secure place.



Record Keeping:

Banking Cooperative Banks teaserRecord keeping is an important part of securing your money. Banks devote much time and attention to both the practice and technology of maintaining and storing accurate records. If banks expect you to let them hold and use your money, they know you expect them to keep careful track of it. The same principle applies to large transactions between banks and industry and between banking institutions and the government.




Security & Identification:

Banking Investment Banks teaserIdentification is an important security function of banking. Obviously, you don't want unauthorized people walking in and taking money from your account, but the issue of security and identification goes far beyond the local branch. Identifying theft is a growing concern in the economy, and bank officials work closely with technology experts and law-enforcement agencies to prevent various forms of identity theft. Identity theft occurs when someone achieves financial gain by using another person's personal information to unlawfully assume the identity of the other person. An identity thief conducts transactions illegally for personal gain. With the increased reliance on the Internet for financial transactions, identity theft protections extend beyond conventional checking accounts to include online banking, automatic bill pay, and online shopping.




Technofunc Bank Banking teaserEnforcement is a part of safeguarding money that involves catching those who attempt to take it. Not only does this function involve physical security, but it also includes tracking down fraud, making collections, and pursuing legal actions against those who inflict losses on the bank. Robbers, white-collar embezzlers, or people who default on loans are all included in the group targeted by enforcement efforts.




Plastic Money:

Banking Payroll Cards teaserTransfer security is important to banks. Although cash is still an important part of bank transactions, most money moves merely on computer screens. High-tech security measures are increasingly more critical to banking operations between banks and customers, between banks and banks, and between banks and the government. As all financial intermediaries become more dependent on electronic banking, technological security takes a more significant role.




Sound Business Practices:

Types of Banking teaserSound business practices also safeguard your money. Most of these involve good judgment and management of daily bank operations. Banks invest time and money to train employees in procedures and practices. Train¬ing goals include ensuring accuracy, encouraging good decision-making regarding the creditworthiness of prospective customers, and teaching how to make sound financial decisions. Federal and/or state bank examiners closely review the records of banks to protect consumers. Their examinations include not only the accuracy of records but also the prudence of banks' policies. These thorough examinations may take a week or more for a small bank, and a much longer time for a larger institution. You can see how these various ways of safeguarding your money work together within the local bank and the banking community at large to create a more secure financial environment. This system of checks and balances is important to the economy and to society.



Spreading the Wealth:

Banking geographic segments teaserBanks are critical to the economy. Although there are many ways that money moves around the economy, banks play a central role in establishing the financial environment. Transferring money to provide growth and stabilizing the money supply are important functions performed by banks. Lending by banks makes money available to consumers and businesses to make purchases they might not otherwise be able to make, or at least not for a very long time. Banks also help determine the creditworthiness of prospective customers so that good money is not lost on bad loans.




Money Transferring:

Banking Funds teaserBanks move money. They move it between banks, between banks and individual customers, between banks and industry, between banks and governments, and sometimes between governments. Sometimes the sums involved are huge. This motion of money throughout the nation and the world allows businesses to have access to capital. With capital to invest, businesses expand, job creation occurs, products get manufactured, services are performed, and the economy grows. This large-scale transfer of assets is a feature of the modern economy particularly in an age of fierce competition and globalization. Industries seek out financing wherever they can find it, and banks seek out investment opportunities wherever they may be.



Banking Industry Value Chain: Basic Functions in Banking

Exchange Rates:

Banking Exchange Rate teaserIn international banking, exchange rates measure the relative strength of one form of the currency against another. These variable rates are often indications of the strength of a nation's economic position. The ability to transfer sums of money between financial institutions safely and effectively depends on the stability of the institutions, the stability of the countries where the banks reside, and the security of the money supply itself.





Banking Loans Lending teaserLending makes up most of a bank's business. Many bank deals are more complex than automobile or home loans. In fact, banks lend money to businesses and governments in a wide variety of ways, with loan duration ranging from short terms to very long terms. Bank lending is the main reason that people are able to own homes and cars without waiting forever to buy them. A variety of loan products provides many choices for banks to transfer money into the economy. In the far-ranging and fast-shifting world of banking, strong management skill, and a thorough understanding of finance are required.




Issue of Credit Cards:

Credit Card Banking teaserCredit cards issued by banks are another form of lending, and they are not only good business for the bank, but they also help the economy. People buy things with credit, and keep merchandise moving and manufacturing producing at a more rapid rate than if transactions had to take place in cash. Although there is a risk in the unwise use of credit cards by consumers, the judicious use of credit stimulates the economy.




Home Loans:

Social Banking teaserHome loans still constitute an important part of the banking business. Loan decisions need to be made in a healthy, rational way to borrowers who are qualified for the loans they obtain. The automobile and housing industries have grown hand in hand with solid banking industry. Providing home loans to qualified borrowers is a very profitable business for banks and it stimulates the economy on one hand and raises the status level of the society on the other.




Evaluating Creditworthiness:

Banking Commercial Banks teaserA creditworthy customer has a good credit rating, sufficient collateral for loans, and an ongoing income source sufficient to make timely loan pay¬ments. Evaluating the creditworthiness of customers, whether they are large industries, governments, or individual consumers, is a critical banking function that affects the economy. It is a good business practice for banks to evaluate loan applications carefully because of their profits, and in some cases, their survival depends upon being repaid the principal and the interest from loans. If banks were to overextend themselves with uncollected loans, they could begin to fail, and if they fail, the economy is at risk.




Guaranteeing the Money:

Banking Gold Standard 1 teaserIn most countries, banks and the government work together to form the banking system and to make sure the money supply is adequate, appropriate, and trustworthy. Much of this guarantee is backed through the central banking function of the Central Bank of the Country. Individual banks also work with the government to implement monetary policy, perform exchange functions for citizens, defeat counterfeiters of currency, and prevent identity theft. In addition, banks guarantee their own policies. Networks of banks agree to honor credit cards. If you write a check on your account, you can be sure that the recipient of the check will get his or her money from your bank, providing you have sufficient funds in your account to cover the check amount. These actions make the transfer of money between citizens and businesses easy, which helps to keep the economy going.



The Substance of Society:

NGO Banking teaserThe functions that banking institutions perform do more than move money through the economy. They also provide a common system. A great part of an economic system is psychological. It is your belief and trust in the financial system that makes you willing to borrow and pay later for a car, to invest money in businesses you've never seen, to deposit money in banks, that is, in turn, is loaned to people you don't know, or to take on a 30-year mortgage. Banks are at the heart of this financial system, and their effect on your life cannot be calculated.

Related Links

You may also like History of Banking: The Gold Standard & Fractional Reserve Banking | Banking Operations: Understanding Various Transactions & Activities | Banking Industry Value Chain - Understanding Customers of Banks | Banking Industry Business Model - Understanding How the Banking System Works | Changes in the banking landscape and impact on country specific strategy | Case Studies & Challenging Projects in Banking Domain | Identifying growth opportunities in Islamic finance | Trends in Banking Industry | Technology Risk – Example Banking IT | Introduction to Banking: What is a Bank? | Banking Operations: Understanding Modern Banking Products | Banking Industry Value Chain: Decoding Bank's Balance sheet | Banking Industry Value Chain - Economic Benefits of Banking | Real life examples of challenges in banking industry & strategies adopted for success
Creation Date Thursday, 30 May 2013 Hits 23217

Explore Our Free Training Articles or
Sign Up to Start With Our eLearning Courses

Subscribe to Our Newsletter

© 2020 TechnoFunc, All Rights Reserved