Understanding the Role of Banks

“Money looks better in the bank than on your feet” – Sophia Amoruso

Banks are the central ‘hub’ of all things money. They provide loans, store money, offer savings accounts, amongst other services. However, it is important to know that there are other financial institutions that operate as well as banks. For example, Building Societies and National Institutions exist alongside the Bank of England, which we will explore below…

The Bank Of England:

The majority of countries have a Central Bank. The Central Bank takes on key processes that the government passes on, for example managing interest rates and implementing economic policies.

The UK’s central bank is the Bank of England, and there is a whole load of info on what they do here.

Building Societies:

Building Societies are a different type of financial institution when compared with banks. They are owned by their members, typically focusing on savings and mortgage lending. Building societies do not have shareholders, so any profits are put back into the business.

Financial Inclusion:

Financial Inclusion is defined as an individual’s ability to access financial products and services. World Bank states that 71% of people have access to a bank account. Hence, nearly 1/3 of the world have no access, so you should make the most of your opportunity!

The goal of improving financial inclusion involves better education, awareness and product distribution. In particular, this ensures more and more people, especially those in developing countries, can have access to bank accounts. Hence, they can start their saving journey and have more control over their money.

Key Terms:

Central Bank – Main bank in a country, sets interest rates, monitors other banks, amongst many other functions.

Shareholders – People who are financially invested in a company.

Profits – The revenue a company makes, subtract its costs.

Developing countries – A typically ‘poor’ country that is aiming to become more advanced.