Essay on Banking: Bank and Investment Banks

Crystal Tillman

Banking Systems Banking activities are almost as old as the earliest civilizations. The earliest bankers were money changers or money lenders. The first banks were established in the U.S. were state banks. The banking system in the United States today is made up of many banks operating at different levels. All these banks, however, must operate under the jurisdsiction and rules of the Federal Reserve System, the centerpiece of American banking. Commercial Banks make up the largest banking group in the U.S. At one time, commercial banks could easily b distinguished from other financial instituition by the fact that only they could offer checking accounts. However, changes in the banking laws now allow other financial instituitions to offer checking accounts as well. Commercial banks can be established and operated only after being granted a charter by either the state or federal government. The primary functions of this type of bank is to receive deposits, make loans, and provide checking and other services to customers. They also make short-term loans to businesses and personal loans to individuals. Savings and Loan Associations are owned and operated by individuals, who as shareholders, elect a board of directors to manage the organization. Savings and loan associations primarily make long-term loans to individuals for the purpose of building homes or buying exisiting homes. Today they make many other types of loans. They also make checking account services available to depositors. Savings Banks specialize in individual savings accounts. These banks may be owned by stockholders, although most function as cooperatives, or mutuals, and are owned by depositiors. By pooling their savings into a mutual bank, wage earners with individual savings could find profitable investment opportunities for their money. Credit Unions are cooperative nonprofit associations owned and operated by their members. They are often organized by the employees of large companies or members of labor unions for the benefit of thei membership. The primary purpose of credit unions is to offer high-interest savings accounts and low-interest loans to members. Investment Banks specialize in distributing the securities, stocks or bonds, of corporations to the public. Investment banks purchase newly issued stocks and bonds from companies and then resell these securities to individual investors in smaller quantities. Investment banks buy securities from a company at a particular price with the intention of reselling them at a higher price. The difference between the purchase price and the sale price is the investment bank's profit. Investment banks provide companies with the money they need without the companies having to wait for the general public to buy stock. The main two that I will be discussing is invesatment banking and commercial since they are the most commonly used other than credit unions. Investment banks provide services and advice to corporations, investors, and other individuals or institutions. These services are generally based on the intermediation between issuers of capital and providers of capital, and include financial products ranging from debt or equity issuance to advice on mergers and acquisitions. Within an investment bank you might work in some of the following areas (not a comprehensive list):
Corporate Finance: Assisting businesses with their funding needs, typically in support of relationship managers who are responsible for integrated client interaction.
Capital Markets: Advising business on a variety of ways to access financial markets, usually coordinating between corporate finance, sales &

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