RSSBanks
Feb 11
Financial institutions are companies that deal in money or money equivalents, such as stocks and bonds. The financial institution that most people know best is the commercial bank—an establishment in which individuals, businesses, government agencies, and even other banks deposit money. From these deposits the bank makes loans to individuals, businesses, government agencies, and other banks. The interest earned on these loans is a chief source of income for the bank. Banking operations of this kind are similar around the world. This article emphasizes commercial banking in the United States. Banks make their profits from interest earned by renting money in the form of loans or by making investments. In order to have money to loan or invest, a bank must first raise the funds—primarily by means of equity capital, deposits, or non deposit funds. Deposits represent the largest source of commercial bank income—usually more than 80 percent. The three main kinds of such accounts are demand, savings, and time deposits. A commercial bank is a corporation, and its owners are the stockholders. From the bank’s profits the stockholders are paid annual dividends. Only a small proportion of a bank’s income—just over 5 percent— comes from equity capital invested in the bank.