Banking industry handles cash, credit, and other financial transactions. Banks arrange for a safe place to store extra cash and credit. They offer savings accounts, certificates of deposit, and checking accounts. Banks use these deposits to make loans. These loans include home mortgages, business loans, and car loans.

Banking is one of the key industries of the US economy. It provides the liquidity needed for families and businesses to invest in the future. Bank loans and credit mean families don’t have to save up before going to college or buying a house. Companies use loans to start hiring immediately to build for future demand and expansion.

Types of Banking

Various types of banks operating in the world economy to meet the financial requirements of different categories of people engaged in agriculture, business, profession, and more.

Types of banking are;

  1. Group,
  2. Chain,
  3. Branch,
  4. Unit,
  5. Mixed.

The term banking may define as accepting of deposit of money from the public for lending or investing investment of that money which are repayable on demand.

Group Banking

A plan offered by banks designed to be used by groups rather than individuals. A common example is a company plan offered to employees.

Usually, the bank will offer incentives such as discounts, lower fees, and interest rates, as well as other benefits not available to individual customers.

Group banking members may have access to lower interest rates, lower fees, discounts and other perks not available to regular account holders.

Group banking can also provide a more personalized banking relationship for the members if the bank designates one representative, who is generally more knowledgeable about the group’s needs, as the point of contact for all the members of the group.

2. Chain

Conceptually, chain banking refers to a form of bank governance that occurs when a small group of people controls at least three banks that are independently chartered.

Usually, the controlling parties are majority shareholders or the heads of interlocking directorates. Chain banking as an entity has declined with the surge in interstate banking.

Chain banking is a situation in which three or more banks that are independently chartered are controlled by a small group of people.

The concept of chain banking is different from group banking, in that the entities involved in the chain bank arrangement remain autonomous and are not owned by a single holding company.

By contrast, the group banking model requires a holding company to own all the banks involved, effectively creating an umbrella under which all the banks operate.

Chain banking is also different from branch banking, a situation where all local branches of a bank are owned by a single banking institution.

A bank holding company is a company that controls one or more banks but does not necessarily engage in banking itself.

3. Mixed Banking

Mixed banking is a system of banking where a bank combines both deposit banking as well as investment banking. In other words, the bank will provide short-term loans for commerce and trade and long-term finance for industrial units.

While this type of banking promotes rapid industrialization, the mixed banking system reduces the liquidity of funds of commercial banks.

Stated differently, it difficult to pay back the borrowed funds of customers whenever they make a demand for their money. This is because funds get blocked when the bank gives long-term loans to industries.

Banking systems encourage either small, independent banks or banks that are theoretically independent but are owned by a bank holding company.

Advantages of Unit Banking

  1. Local funds for local people: The unit banking of a particular locality utilizes its resources for the development of its locality only and does not transfer them to other localities like branch banking.
  2. Intimate Knowledge of Customer: The Managers of the local unit bank can easily acquire the personal knowledge of customers as well as the specialized knowledge of the local industries and occupations. Therefore he is in a better position to serve the need of the local borrowers; lie has greater chances of cultivating a friendly and personal relationship with the individual entrepreneurs of his locality.
  3. Continent management supervision and control.
  4. Discontinuance of inefficient branches.

5. Branch

Branch banking refers to a single bank that operates through various branches in a city or different locations or out of the cities. It offers a wide array of face to face service to its customers.

Services provided by a branch include cash withdrawals and deposits from a demand account with a bank teller, financial advice through a specialist, safe deposit box rentals, etc.

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