Purpose of Banks
A Bank is a financial institution which is involved in borrowing and lending money. Banks take customer deposits in return for an annual interest payment. The bank then use the majority of these deposits to lend to other customers for a variety of loans. The difference between the two interest rates is effectively the profit margin for banks.
Banks are seen as a secure place to deposit money. In the UK, banks are guaranteed by the Bank of England, therefore, consumers see them as safe places to deposit money.
Banks can also give other features to consumers, such as instant access to cash (hole in the wall cash machines) advice on financial matters and methods to make international payments. Increasingly banks offer electronic transfer of money through systems such as BACS
Bank Lending varies from unsecured personal loans to secured mortgage lending. Unsecured lending tends to be at a higher interest rate because of the risk factor. Secured mortgage lending is at a lower rate, but can be over 30 years or more.
Banking in the UK is a very profitable enterprise because there is a lack of competition. The market is dominated by the top 10 banks, and in particular the big 5 banks.
This is the process of comparing accounting records with the records presented on the bank statement. Sometimes discrepancies between the records might occur due to the timing differences when the data is recorded in the accounting and in the bank books. Bank reconciliation is a way to check whether the differences are due to timing or some error.