What is the Banking Industry?
The banking industry is an enormous sector of business and finance that has existed in human civilization in some form for thousands of years. In the modern world, the banking industry plays a large part in financial dealings, as it is a major and popular means for investing, borrowing, and storing money. Banks exist all over the world, and are usually heavily regulated by world governments in order to prevent corruption and protect the money of the general public.
Though there is some evidence of a banking industry in ancient Greece and throughout other early civilizations, the Middle East and Asia are believed to have played an important part of the development of a banking industry. The word “check” derives from an old Arabic word for a promise of payment on delivery, and historical records show some evidence of an international banking trade between Islamic nations and China as early as the 9th century.
Many historians trace the foundations of modern banking to 14th century Italy, where wealthy Italian families established banks for the lending and investing of money on trade and commerce. Banks sprang up throughout Europe during the following centuries, concentrating in the great ports of the old world where commerce was a part of daily life. With the shift from precious metal currency to fiat money systems, the banking industry was less limited by finite resources and could expand ever further. The development of computer technology also playing a critical part in creating a global industry, since users were no longer limited by the need to physically visit a bank to manage transactions.
The banking industry provides clients with a variety of services and options. The most basic function of a bank is to provide customers with a safe, guaranteed record of their accumulated money, usually done through a checking account that can be easily accessed for withdrawals and deposits. Banks also provide savings accounts, which are also easily accessed but provide a slightly higher interest rate for funds. For many people, involvement with the banking industry is limited to these two basic accounts, but this is only a bare minimum of what the industry offers.
Banks play a major part in the investing and loaning of money. Most banks can use the funds deposited in accounts to loan out money or make investments; this practice allows a constant flow of lending and borrowing that keeps money circulating throughout the economy. Loans that many banks offer include commercial loans, property loans, vehicle loans, and lines of credit. Investment services offered by many banks include retirement, certificate of deposit (CD), and money market accounts.
One thing I find fascinating about the banking industry is that money is treated exactly like any other product made by any other industry. I might talk about my factory producing 12,000 tires today and my banker friend may talk about his bank loaning out 12 million dollars last week. It's the same conversation. Instead of hamburgers or t-shirts, his company deals in money.
Until all of those money lending scandals happened a few decades ago, I didn't realize that banks could actually run out of money or go out of business. The government can only do so much to protect banks or their members. I belonged to a bank one time that got bought out by another bank without much warning. The new bank had to spend a lot of its own money changing out everything left behind by the old bank.
When I was growing up, I didn't realize my parents' local bank was actually part of a much larger banking industry. I just thought they were a giant safe that kept everybody's personal money protected, but they didn't actually make any money of their own. It was only when I became an adult that I realized banking was a business, and banks had all sorts of ways to earn income.
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