A bank is a financial institution that makes loans and accepts deposits. Its main functions are to pool funds from people and businesses that have money, lend it out to those who need it and make profits on the interest paid to depositors. Banks also provide payment services like checking accounts and credit card transactions.
People save money in banks to protect it from loss, theft and natural disasters. When people save in a bank, they can rest assured that their money will be safe because the Federal Deposit Insurance Corporation, or FDIC, backs it up. In addition to protecting money, banks can help people grow their wealth by lending it out in the form of loans. Banks can offer different types of loans for different needs, such as cars and homes.
Banks are regulated by governments, including the Office of the Comptroller of the Currency and the Federal Reserve Board. They are also used as instruments of broad economic policy, such as encouraging nondiscrimination in lending or promoting community development.
Banks are a vital part of the financial system and are the major source of consumer loans, such as mortgages and car loans, as well as business loans. They also operate the backbone of our payment systems, processing most credit and debit card transactions. Because of their importance, banks are often subject to intense pressure from investors and regulators to meet earnings and growth targets. This can lead to speculative behavior and excessive risk taking.