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.

Retail 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.
•  Community banks: a depository institution that is typically locally owned and operated. In the United States the FDIC defines community banks not by asset size alone but by a bank's business model, geographic footprint and branch network. At year-end 2019 there were 4,750 community banks and 427 noncommunity banks, so community banks were the large majority of FDIC-insured institutions while holding 12 percent of total banking industry assets.
•  Community development banks: regulated banks that provide financial services and credit to under-served markets or populations.
•  Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families.
•  Postal savings banks: savings banks associated with national postal systems.
•  Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.
•  Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.
•  Savings bank: a financial institution that receives savings accounts and pays interest to depositors. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreach—and by their socially responsible approach to business and society.
•  Building societies:  financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially mortgage lending. These institutions are found in the United Kingdom (UK) and several other countries.
•  Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments.
•  Direct bank: a bank without any physical bank branches. It offers its financial services by:  telephone banking, online banking, ATM, mail banking, mobile banking. Two of the best known early direct banks, Egg in the United Kingdom and ING Direct in the United States, no longer trade under those names: Citigroup sold Egg Banking plc's credit card business to Barclays in April 2011 and wound down its remaining UK consumer finance operations, and ING Direct USA was acquired by Capital One on 17 February 2012 and rebranded Capital One 360.

Central banks

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, the US Federal Reserve describes itself as performing five functions:
•  Conducting the nation's monetary policy
•  Helping maintain the stability of the financial system
•  Supervising and regulating financial institutions
•  Fostering payment and settlement system safety and efficiency
•  Promoting consumer protection and community development

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.

Islamic banks

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

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 and BNP Paribas. Credit Suisse was a universal bank until UBS acquired it in 2023; UBS AG and Credit Suisse AG were merged on 31 May 2024 and Credit Suisse AG ceased to exist as a separate entity.