The Banking system refers to the network of personal and business bank accounts that help deposit and lend consumers money. Different aspects of the Banking System include:
- High Street Banks providing services to the general public. In the UK The Big Five banks are HSBC, Halifax, Lloyds TSB, Natwest and Alliance & Leicester. Top 10 British Banks
- Business Banking. Many high street banks provide specialised services for businesses. They operate similar to ordinary accounts, but usually have more services and more fees.
- Investment Banking. These are financial institutions who invest money on behalf of investment trusts, pension funds and high street Banks. They look for the best way to invest money through knowledge of different bond markets, exchange rate markets and the stock market.
- Central Banks. Underpinning most modern banking systems is the Central Bank. Usually a quasi government organisation, Central Banks have various tasks such as ensuring sufficient liquidity, acting as lender of last resort and in some cases setting Monetary Policy. In the UK, The Bank of England is responsible for Monetary Policy.
Banking System Stability and Collapse. The aim of the banking system is to provide security and confidence in the economy. If banks were allowed to go bankrupt and consumers lost savings; it would cause widespread financial panic and many consumers would withdraw their savings and hold as cash. If there was a withdrawal of money it would cause a shortage of funds for lending. This is why Central banks act as lender of last resort.