Types of Banks
There are many different types of banks: retail banks, investment banks, savings banks, commercial banks, online banks, universal banks, Islamic banks, central banks, and others. Different types of banks specialize in different lines of business. Banks come with a variety of names and one bank can function as several different types of banks.
A retail bank is a bank that works with consumers, otherwise known as retail customers. They focus on mass market products such as current and savings accounts, mortgages and other loans, and credit cards. In addition to helping consumers, retail banks often serve businesses as well - so they can also serve as commercial banks.
Types of retail banks:
• Commercial bank: the term used for a normal bank to distinguish it from an investment bank. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services.
The central banks are an organization responsible for managing banking activity and normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. Within the USA the central bank is the Federal Reserve. Other countries have central banks as well. Their roles are similar, but they may have different objectives. For example, in the US, the central bank has three primary goals:
Investment banks (IB)
An investment bank is a financial firm which specializes in the sale and management of securities such as stocks and bonds. An investment bank also assists companies involved in mergers and acquisitions, derivatives, etc. IB primarily work in the investment markets and do not take customer deposits. However, some large investment banks also serve as commercial banks or retail banks. There are two types of investment banks - the investment banks that perform underwriting activities, and the merchant banks, a traditional form of banking that performs trade-financing activities.
Banks adhere to the concepts of Islamic law (Sharia). This form of banking revolves around several well-established principles based on Islamic canons. Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively, (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden).
Universal banks participate in many kinds of banking activities and combine retail, wholesale and investment banking services. Banks of large size tend to operate as universal banks, while smaller firms specialised as commercial banks or as investment banks. Examples of universal banks include JPMorgan Chase, Deutsche Bank, UBS, Bank of America, Barclays, Credit Suisse.