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Banking is a business that deals with money and credit. Almost all of us have had our own personal piggy banks of one sort or another and may have lent or borrowed money from others. Banking institutions basically do the same thing on a much, much larger scale within certain rules.
Today there are many other types of institutions that perform one or many of the jobs a bank traditionally did and banks are also engaged in new activities in new ways.
There have been traditionally several types of banks. One type is the commercial bank of which there are a wide variety. Their job is to accept deposits of people’s money for safekeeping. The bank in turn takes this money and invests it. The depositer then earns a certain amount of money called interest for depositing his money in a bank and letting the bank use the money for investments. On the other hand, banks also make loans to people, depending on their ability to repay the loans. The borrower is charged interest, an amount of money the bank charges for the privilege of lending money to the borrower. Mutual savings banks ability to make loans is more dependent on the amount of money they get from consumer deposits versus commercial banks whose ability to make loans is more dependent on reserves. Banks that are part of the Federal Reserve system of banks must be insured to cover losses.
Other institutions that perform banking services include savings and loan associations, credit unions, mortgage companies, insurance companies,etc.. Credit unions are groups of people, typically workers at a particular business, that pool their money together for savings and loan activity. Credit unions typically offer lower loan interest rates to members. Savings and loan associations traditionally accepted deposits from private investors and then lent money to individuals for mortgages. A mortgage is a loan or money borrowed to pay for a home, busines or other types of real estate. The home or business is the security for the loan to buy the home or business. If the borrower fails to repay the loan, the bank or savings and loan assumes ownership of the home or business.
Bankruptcy or going bankrupt means that a person is so in debt that they cannot repay their loans. When they declare bankruptcy, they publicly declare that they cannot repay their debts. A plan is worked out so that the person who owes money works out a plan to repay at least some of the debts owed.