The Basics of Banks and Banking

The first question to ask when looking at the fundamentals of banks and banking is "What exactly IS a bank?" The two most common definitions are "a financial institution that accepts deposits and channels the money into lending activities" and "[A] business establishment in which money is kept for saving or commercial purposes or is invested, supplied for loans, or exchanged, or the offices or building in which such an establishment is located."

Banks are distinct from Building Societies in that they are commercial organisations whose primary purpose is to make money through the business of providing financial services, whereas a Building Society is chiefly a Savings and Loans association.

Although Building Societies are similar to banks, in that they provide a wide range of financial services (including personal banking, loans, credit cards, and so on) three-quarters of their total business must be devoted to residential mortgage loans and related products, such as home equity loans. In comparison, a bank is under no restrictions as to the composition of its financial business.