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Information on banks

This information page contains business and finance terms containing the word ‘bank’ or ‘banking’, a short explanation of what they mean, and hyperlinks to articles with more comprehensive definitions.

Moneylending has been around for thousands of years, while banks as we know them today began to appear in 14th century Europe, in the wealthy cities of Renaissance Italy.

Agent Bank – a bank that represents and acts on behalf of other banks, companies, organizations or individuals. Also called an agency bank.

Bank – a licensed financial institution that receives customer deposits and offers loans. It makes money by charging higher interest rates on its lending that it pays out on customer deposits. There are two main types of banks (apart from central banks): investment banks and commercial banks.

Bankers’ Bank – a financial institution set up by banks to provide services to community banks in the United States so that they can compete with the larger institutions more effectively. The term may also refer to a central bank.

Bankmail – refers to an agreement between a corporation and a bank, that it (the bank) will not finance the acquisition plans of a rival. The agreement may be between the predatory company and the bank, or the prey (the target of a hostile takeover attempt) and the bank.

Banknote – physical paper money that is in circulation along with coins. Banknotes are issued by a central bank and promise to pay the bearer a specified amount on demand. In the US it is also called a bill, and in the UK/Ireland a note.

Bank Rate – the interest rate a central bank charges its domestic banks. All other banks in an economy base their own interest rates on the bank rate. Also called the base rate, and the federal discount rate in the US.

Bank Reference – a bank’s statement on one of its customers, informing on whether he or she is good for a specified line of credit or financial commitment. Also called a banker’s reference. Banks commonly call it a status inquiry.

Bank Run – when customers lose faith in their bank or the economy in general and start withdrawing money from their account. The fear spreads and turns into a stampede, i.e. a bank run. Also called a run on the bank.

Bankruptcy – a situation in which a person, business or any entity that cannot pay back money owed to creditors. Bankruptcy is a legal status that is initiated by a court order.

Banksters – refers to unethical, dishonest, greedy and fraudulent bankers. The term, which emerged in the US in the 1930s, comes from blending the words gangsters and bankers.

Bank Statement – a document issued by the bank that includes all transactions in a customer’s account over a specific period (typically one month). It is also known as an account statement.

Bank Stress Test – a simulation of a financial crisis to test a bank’s resilience, i.e. to see how it would cope in an emergency. Since 2008, most regulatory bodies across the world have required their financial institutions to undergo stress tests.

Basel Committee on Banking Supervision (BCBS) – the body that regulates banks across the world. It is in charge of creating the Basel Accords (banking regulation recommendations).

Central Bank – a country’s monetary authority and major regulatory bank. Its aim is to manage a nation’s currency, control monetary policy, supervise money market operations, manage exchange and gold reserves, provide banking services to the government, and act as lender of last resort to domestic banks.

Commercial Bank – a bank that takes deposits and lends money. Customers include individuals, organizations and companies.

European Central Bank (ECB) – the Eurozone’s central bank. It manages the monetary policy for 18 European Union member states that use the euro as their official currency.

Fractional Reserve Banking – happens when a financial institution has reserves that are less than the amount its customers have deposited. It is what makes the money supply expand.

International Bank Account Number (IBAN) – used to identify a specific bank account internationally. IBAN consists of a series of letters and numbers. IBAN usage helps accelerate automatic processing of cross-border payments and receipts.

International Banking Facility (IBF) – an account created by an American bank for non-US residents and institutions so that they have access to banking services. The facility allows banks to offer loans and take deposits from foreign individuals and businesses.

Investment Bank – a bank that does not take deposits, but specializes in services for corporations and major investors such as pension funds. In the UK it is often called a merchant bank.

Mutual Savings Bank – a savings bank that belongs to its depositors. There are no shareholders. Mutual savings banks have been around for about 200 years, and were aimed at low income workers to encourage them to save.

Online Banking – refers to banking via the Internet. Customers can check their balances, make payments, set up standing orders and direct debits, and transfer money online. This can be done with the use of a PC, smartphone, or tablet. Also called virtual banking, Internet banking, or e-banking.

Private Banking – a service banks offer to individuals with a high net worth (rich people). It is much more personalized than other forms of retail banking.

Retail Banking – the branch of banking that provides services to people and small companies. Retail banking contrasts with wholesale banking or investment banking.

Shadow Banking System – refers to banking-like activities carried out by non-deposit-taking financial institutions such as investment banks, hedge funds, monoline insurance companies, and other unregulated entities. They look like banks, do things banks do (except take deposits), behave like banks, but operate below the regulator’s radar.

World Bank – a financial arm of the United Nations that offers loans to low-income and emerging nations for infrastructure and development projects. It was created after the Second World War for the reconstruction of Japan and Europe.

Zombie Bank – a bank whose assets are worth less than its liabilities, i.e. it has a net worth of less than zero. However, it continues operating thanks to government support.