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Banking Overview

Banking Industry Overview
Banking Functions
The traditional role of banks includes accepting deposits from customers, providing loans, processing money orders, issuing cashier’s checks and certificates of deposit, and establishing credit.   Banks can also participate in non-traditional financial services such as investment banking, securities dealing, and insurance due to the passage of the Gramm-Leach-Bliley Act in 1999.
Acting in a traditional role, banks encourage individuals to store money in accounts by paying out interest.   The type of account holding the money, such as savings or money market, determines the amount of interest paid.   Individuals and businesses also establish checking, savings, and money market accounts with banks in order to protect their money.   Although safeguarding money in a bank does not necessarily provide the individual or company with a significant return, the investment has low risk.   The Federal Deposit Insurance Corporation (FDIC) insures bank deposits up to a certain limit in the event that the bank experiences losses and cannot repay customers.   In exchange for the cash that individuals deposit into accounts, banks issue commercial, consumer, and real estate loans that earn interest at variable rates.   Since the interest earned from loans is higher than the interest paid to customers, banks earn revenues from loans.   Despite additional earnings from investments in securities, interest from loans typically brings in the greatest profits for banks (Bureau of Labor Statistics, 2004).
Banks provide loans to a variety of customers.   Consumer lending typically finances large family expenses such as home additions, automobiles, recreational vehicles, and education.   Commercial lending to companies includes loans for starting businesses, improving facilities, buying long-term assets, or purchasing inventory.   Real estate lending includes loans to individuals or businesses to buy homes, buildings, or land.   Residential real estate...