Bank Basics: Understanding the Various Types of Banks

Banking has changed in many ways through the centuries. The oldest forms of banking were often simple loans issued to businesses to purchase their goods. Once the goods were sold, the lender collected the money for the loan with interest. Today's banks have diversified their services and products, with the goal of providing fast and efficient service. By putting a community's surplus funds to work through deposits and investments, banks are able to assist individuals in purchasing cars and homes, start businesses, send children to college, and countless other advantages.


These activities conducted by the bank are divided into retail banking, business banking, corporate banking, private banking, and investment banking. While most banks operate as profit-making, private enterprises, some are owned by the government and considered non-profits. These banks might supervise commercial banks, oversee monetary policy, and act as a lender of last resort.

The definition for the various bank activities are defined below:

Retail Banking - deals directly with individuals and small businesses.

Business Banking - services which are provided to mid-market businesses

Corporate Banking - services designed for large business entities

Private Banking - offer services to private individuals possessing sizable assets

Investment Banking - relates to services on the financial markets (such as stocks and bonds)

Retail Banks Defined

The term commercial bank distinguishes it from an investment bank. Following the Great Depression, the U.S. Congress ordered banks to engage only in banking activities. Investment banks were confined to capital market activities, such as the stock and bond markets. As this separation is no longer mandatory, "commercial bank" indicates what people normally refer to as a bank. It can also refer to a financial institution that deals mostly with deposits and loans from large corporations.

Locally operated, community banks are generally created to empower employees to make decisions that serve the best interests of their clients and partners. Meanwhile, community development banks or CDBs are those designed to serve residents in low- to moderate-income areas, as well as spur economic growth. The retail bank products are designed for customers who are considered "financially underserved." CDBs exist in cities around the country, from Chicago and New Orleans to New York City and Washington, D.C.

Postal savings banks were offered by post offices for those who did not have a safe and convenient method for saving money. The United States began this system in the early 1900s to encourage saving among the poor. It was abolished in 1966. In Japan, one of the nation's leading bankers is the post office, which holds trillions of yen belonging to overly-conservative citizens.

Managing the assets of high net worth individuals, private banks originally defined banks that were not incorporated and owned by an individual or a general partner with limited partners. In this case, creditors could look at the entirety of the bank's assets, as well as the assets of the proprietor/general partners. Private banks have a long tradition in Switzerland, however most have since been incorporated.

Located in a typically low-tax jurisdiction, or tax haven, offshore banks are located outside the country of residence of the depositor. Some depositors seek the services of these banks for their easy access to deposits, less restrictive legal regulation, and increased privacy for the depositor. It is believed that as much as half of the world's capital flows through offshore centers. Swiss banks hold approximately 35 percent of the world's private and institutional funds, while the Cayman Islands, in terms of deposits, represent the fifth largest global banking center.

Specializing in accepting savings deposits and making mortgage loans, the savings and loan association are often mutually held, meaning the depositors and borrowers are members with voting rights. These rights allow them to direct the goals of the organization. Many fondly recall the old savings and loan run by George Bailey in the 1946 film It's a Wonderful Life.

Investment Banks Defined

Investment banks are concerned with helping companies and governments raise funds by issuing and selling securities in the capital markets. They also provide corporations advice on mergers and acquisitions, the trading of derivatives, commodity and equity securities, and underwrite stock and bond issues.

While merchant banks were traditionally banks that engaged in trade financing, today the term refers to banks which offer capital to firms in the form of shares rather than loans. While venture capital firms are concerned with immature, high-potential growth companies, merchant banks tend not to invest in new companies.

Retail and investment banking combined creates universal banks, also known as financial services companies, who engage in everything from commercial and retail lending to offshore banking to customers in other countries through its subsidiaries. Some big banks are diversified and engage in multiple activities, including bancassurance, or the sale of insurance products in a bank.

Small Business Bank Loans In Canada Three Things You Need To Know

When looking for a small business bank loan in Canada many business owners and financial managers quickly realize they are treading on very specialized ground. Let's examine three things you need to know that will allow you to feel that bank financing in Canada is not insurmountable. The general sentiment among small, medium, and in some cases large corporations is that bank financing is both difficult and challenging in the Canadian marketplace. 

Let's examine three key points that will assist most business owners with overcoming obstacles to Canadian bank financing .They are as follows 

1.Are you looking for operating financing or term financing with your bank there is a difference!

2.Could a popular program subsidized and supported by the Canadian federal government be the solution to your working capital needs 

3.What are the minimum requirements to obtain specialized bank financing 

A line of credit or a bank term loan? Is there a difference. There definitely is! If you are looking to either purchase an asset or expand your business your focus should be on the preparation of sufficient data to support that financing request. We feel strong that to be considered for such financing you probably should have an established relationship with the bank already, either on a personal or a corporate basis. It would also help if you had already established some form of operating facility. A bank term loan to acquire an asset, or perhaps make an acquisition comes with a fixed repayment and term, typically five years. You should only consider a bank term loan if you feel you can demonstrate enough financial stability or growth potential. In many cases we recommend to clients that we also sit down with the banker and share some our long term plans and prospects in many cases discussion can be started around the future acquisition of assets of even a competitors business. 

In many cases your firm simply needs an operating facility. If you are an established business, have growth and profit potential, and a relatively clean balance sheet you are in a position to negotiate an operating facility for receivables. Typical facilities margin your receivables at 75% and inventory typically might come in at 40%. We encourage clients to carefully discuss what we will call 'bulge needs 'with your banker. This is in many cases where the client and bank relationship falls apart, because the business owner assumes that the bank will support increased temporary needs for the business. If you take your annual revenues and divide by 12 your monthly sales are XX $. However most business owners know sales growth comes in spurts based on incoming orders, contracts, and yes, even the seasonality of your business or industry. Preparing and supplying either a business plan or cash flow projections are invaluable tools to gain credibility wit your banker, and, by the way, you'll understand your business better.

Let's move on to point # 2. We tell clients the best bank loan in Canada is not really from the bank! What do we mean by that? The answer is a BIL. And of course our clients ask 'What's a BIL '! That is the technical name for a bank loan that is both financed and subsidized and guaranteed by the federal government. Many business owners simply refer to the program as the SMALL BUSINESS LOAN from the government. The banks in Canada administer this program and we feel by far it's the best solution for small and medium business in Canada when it comes to a bank loan. The key things you need to know are that the loan only covers two things equipment and leasehold improvements. Well actually its three things, as real estate can be included also. The real estate limit was recently in the past year bumped up to 500,000.00$ dollars, which is a great way to acquire your facility. 

Terms of this loan are as good as it gets a rate of 3% over prime, limited owner guarantees, and flexible terms and payback. We spend a lot of time with clients explain this program and ensuring they take advantage of if when they can. Most business owners are disappointed to hear that this facility does not cover cash loans, and that it is not an operating line of credit, but a term loan.

Bank term loans have been the means of assisting many companies to grow, as well as allow continued operations during a temporary but anticipated slump. As one of the most common types of loans on the market, banks often offer competitive rates for a bank term loan. Any business that is thinking about the possibility of taking out a bank term loan would do well to shop around for the best rate and conditions possible. 

Let's move on to our final point. By understanding the key requirements of bank financing you can significantly improve your chances of approval success. Work with a trusted, credible and experienced advisor in commercial bank financing origination. Being properly prepared with historical financials, a business plan, a cash flow forecast, and a bio of owner experience improves your chances ten fold of arranging bank financing in Canada. As a footnote, we have always strongly believed it's the banker, not the bank, so seek out with assistance a bank who has a strong interest in getting your business and growing with you on a long term basis.

United States' Largest Banks

The following list shows the largest banks in the U.S. The assets are listed in millions of dollars.

Rank	Name (city, state)	Consolidated assets
1.	Citigroup (New York, N.Y.)	$2,199,848
2.	Bank of America Corp. (Charlotte, N.C.)	1,743,478
3.	J. P. Morgan Chase & Company (Columbus, Ohio)	1,642,862
4.	Wachovia Corp. (Charlotte, N.C.)	808,575
5.	Taunus Corp. (New York, N.Y.)	750,323
6.	Wells Fargo & Company (San Fransisco, Calif.)	595,221
7.	HSBC North America Inc. (Prospect Heights, Ill.)	493,010
8.	U.S. Bancorp (Minneapolis, Minn.)	241,781
9.	Bank of the New York Mellon Corp. (New York, N.Y.)	205,151
10.	Suntrust, Inc. (Atlanta, Ga.)	178,986
11.	Citizens Financial Group, Inc. (Providence, R.I.)	161,759
12.	National City Bank (Cleveland, Ohio)	155,046
13.	State Street Corp. (Boston, MA)	154,478
14.	Capital One Financial Corp. (McLean, Va.)	150,608
15.	Regions Financial Corp. (Birmingham, Ala.)	144,251
16.	PNC Financial Services Group, Inc. (Pittsburg, Pa.)	140,026
17.	BB&T Corp. (Winston-Salem, N.C.)	$136,417
18.	TD Bank North, INC. (Portland, Maine)	118,171
19.	Fifth Third Bankcorp (Cincinatti, Ohio)	111,396
20.	Keycorp (Cleveland, Ohio)	101,596
21.	Northern Trust Corp. (Chicago, Ill.)	77,480
22.	Bancwest Corp. (Honolulu, Hawaii)	74,808
23.	Harris Financial Corp. (Wilmington, Del.)	69,172
24.	Comerica Incorporated (Dallas, Tex.)	67,167
25.	M&T Bank Corp. (Buffalo, N.Y.)	66,085
26.	Marshall & Ilsley Corp. (Milwaukee, Wis.)	63,432
27.	BBVA USA Bancshares, Inc. (The Woodlands, Tex.)	59,953
28.	Unionbancal Corporation (San Fransisco, Calif.)	57,933
29.	Huntington Bancshares, Inc. (Columbus, Ohio)	55,985
30.	Zions Bancorporation (Salt Lake City, Utah)	53,597