The bank started as a money transaction provider, but there is evidence that some of the bank-like services exist since people have been using the written language. Today’s form of the modern banking system as we know it began in the Middle Ages. Back then the main purpose of the bank was to fund the campaign of the Crusades, and to support the nobles and knights fighting over the holy land. The word bank derives from the Italian word banco “desk” used in the Renaissance by Florentine bankers, who made their transactions above a desk. As time progressed, the banking system became more and more elaborate, until the present day, serving many customers and being monitor by the government due to the dependence of the market on this system.
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Types of banks
The main bank – is the bank that monitors other banks and determines the amount of money in the market by printing or destroying money. This bank also sets the interest rate, issues bonds and even interferes in the foreign currency rate. The main bank is part of the government, and helps keep the market in balance and avoid crises.
Mortgage bank – is a bank that specializes in mortgage transactions. These banks played a key part in the 2008-2009 crisis (the “mortgage crisis”) in the US due in par to a low rate of interest, unfit conditions, and no supervision of the mortgage takers.
Investment bank – these banks specialize in investing the customers’ money in order to gain better interest than the “safe interest” given by the main banks in tools such as government bonds.
Commercial bank – this type of bank is a normal bank that provides the basic needs of money transaction, loans, investing money, money depositing, mortgages, etc.
There are also some banks that only serve certain industries such as Hi-Tech or Real-estate, or serve a specific ethnic group such as the Islamic bank.
The commercial bank is a keystone in today’s economy and it serves many people, the bank is responsible for all of our money, yours, and mine. The bank can lend more money than it has because the main bank authorizes such behavior (but under several terms, of course). This situation helps the market to grow, but can turn into disaster if everyone withdraws their money simultaneously (brought on by a panic, usually). This saturation may develop in total market failure. Therefore, the main bank and the government regulate the bank businesses.
In The CEO Game, the bank plays a major role right from the start. You ask for a loan in order to start your business, and later on you may ask again for a loan in order to enhance your growth, open a factory, a store, or launch research into a new products. The bank determines the interest you’ll have to pay by using the main bank interest as a baseline, and adding more depending on the services it provides and the risk taken by giving you a loan. A leading company (also called a “Blue chip company“) will pay less because of its stability, and if you can offer collateral (land, inventory, etc.), the bank will farther reduce your interest.
The CEO Game
October 17th, 2009 at 8:03 am
[...] much money will circulate the market and how much individual will desire to invest money. If the central bank’s interest rate is high, most people will prefer to save the money in the commercial banks and [...]