zpostcode
How different types of banks operate in the financial system
Dec 20, 2025 12:58 AM

  

How different types of banks operate in the financial system1

  Banks are financial intermediaries that collect money from people who have excess funds and use it to provide loans and financing to individuals, businesses, and governments. They also help customers conduct financial transactions, often through an affiliated broker-dealer and/or wealth management division.

  Broadly speaking, banks in the United States fall into two categories: commercial banks and investment banks. Commercial banks offer savings, checking, and lending services, and they are usually regulated by the Office of the Comptroller of the Currency (OCC). Investment banks help corporations and governments raise money through stocks and bonds, and they are usually regulated by the Securities and Exchange Commission (SEC).

  Banks that are part of the Federal Deposit Insurance Corporation (FDIC) system pay premiums into the FDIC. In return, the FDIC insures depositors up to $250,000 in the case of a bank failure. The Federal Reserve also has regulatory oversight duties for banks as well as “nonbank financial intermediaries.” The Fed is responsible for checking and maintaining the overall safety and soundness of the banking system. It conducts audits and stress tests designed to ensure the entire financial ecosystem is prepared for a potential crisis.

  Commercial banksCommercial banks are the most common type of banks. They serve businesses and consumers in two ways:

  Retail services. Banks provide services to individual consumers and small businesses. They offer basic financial products such as checking and savings accounts and certificates of deposit (CDs), personal loans, mortgages, and credit cards. Retail banks typically have a wide network of branches and automated teller machines (ATMs) for easy access to their services. Some operate entirely online.Business services. Commercial banks primarily serve businesses, corporations, and large institutions. They offer a range of financial services tailored to the needs of businesses, including business loans, lines of credit, cash management, and treasury services. Commercial banks also provide services like payroll processing, merchant services, and foreign exchange.The largest commercial banks are known as money center banks. These operate in such global financial capitals as New York, London, and Tokyo. Money center banks provide a wide range of financial services, including commercial banking, investment banking, asset management, and international banking. Money center banks typically have extensive international operations and serve multinational corporations, governments, and institutional clients such as hedge funds, private equity groups, and venture capitalists.

  Investment banksInvestment banks are financial institutions that work with large investors, corporations, and governments. They work in the capital markets (primarily stocks and bonds) to connect investors to companies and governments that need to raise money. They also provide corporations with advisory services on corporate strategy, mergers, and acquisitions.

  Many investment banks also have broker-dealer operations, meaning they buy and sell securities on behalf of customers (many of them institutional clients), as well as for the bank’s own account.

  In the United States, the primary regulator for investment banks is the SEC, but some investment banking activities fall under other regulators, such as the Federal Reserve System. Some investment banks also hold commercial banking charters, so they are subject to those regulations as well.

  Other types of banksMany nonfinancial organizations that connect people with a surplus and people with a need call themselves banks, such as food banks and blood banks. But there are two more categories of organizations that use the word “bank” and operate in the financial system:

  Savings banks. Savings banks, or thrift institutions, focus on promoting savings and homeownership. They usually concentrate on a particular community and have few branches. From a regulatory perspective, they are virtually the same as commercial banks. Land banks. These are government entities or public-private partnerships that acquire vacant, abandoned, or tax-delinquent properties within a community. They work to make the properties safer and salable through demolition, rehab, and redevelopment.The bottom lineOn a simple level, banks connect people who have assets to lend with people who need to borrow assets to fund purchases—from mortgages and auto loans to multibillion-dollar strategic acquisitions. In the United States, commercial banks collect deposits and issue loans, while investment banks facilitate capital formation and other financial transactions.

Comments
Welcome to zpostcode comments! Please keep conversations courteous and on-topic. To fosterproductive and respectful conversations, you may see comments from our Community Managers.
Sign up to post
Sort by
Show More Comments
Recommend >
Battle of Dessau
  Battle of Dessau European history [1626] Actions Cite verifiedCite While every effort has been made to follow citation style rules, there may be some discrepancies. Please refer to the appropriate style manual or other sources if you have any questions. Select Citation Style MLA APA Chicago Manual of Style Copy Citation Share Share Share to social media Facebook X URL...
Theodore McCarrick
  Theodore McCarrick American cardinal Actions Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Theodore-McCarrick Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Theodore-McCarrick Also known as: Theodore Edgar McCarrick Written by René Ostberg René Ostberg is an associate editor at Encyclopaedia Britannica. René Ostberg Fact-checked by The Editors of Encyclopaedia Britannica Encyclopaedia Britannica's editors oversee subject areas in...
Battle of Chios
  Battle of Chios Greek history Actions Cite verifiedCite While every effort has been made to follow citation style rules, there may be some discrepancies. Please refer to the appropriate style manual or other sources if you have any questions. Select Citation Style MLA APA Chicago Manual of Style Copy Citation Share Share Share to social media Facebook X URL https://www.britannica.com/event/Battle-of-Chios-201-BCE...
hostile architecture
  hostile architecture urban planning Actions Share Share Share to social media Facebook X URL https://www.britannica.com/topic/hostile-architecture Share Share Share to social media Facebook X URL https://www.britannica.com/topic/hostile-architecture Also known as: anti-homeless architecture, defensive architecture, defensive urban design, exclusionary design Written by Jordana Rosenfeld Jordana Rosenfeld is a copy editor at Encyclopaedia Britannica. Jordana Rosenfeld Fact-checked by The Editors of Encyclopaedia Britannica Encyclopaedia...
Information Recommendation
Materials sector: Investing in the building blocks of the economy
     Humans have long had an insatiable appetite for materials—natural resources, chemicals, building products, and everything in between. Materials-focused companies, including those listed in the S&P 500, operate to satisfy our demand for these physical products.   Materials are made up of commodities, the raw substances mined or harvested from the earth that go into making numerous products—many involving construction. Investing...
Battle of Flores
  Battle of Flores Spanish history [1591] Actions Cite verifiedCite While every effort has been made to follow citation style rules, there may be some discrepancies. Please refer to the appropriate style manual or other sources if you have any questions. Select Citation Style MLA APA Chicago Manual of Style Copy Citation Share Share Share to social media Facebook X URL...
Robert Kardashian
  Robert Kardashian Armenian American businessman and lawyer Actions Share Share Share to social media Facebook X URL https://www.britannica.com/topic/Robert-Kardashian Share Share Share to social media Facebook X URL https://www.britannica.com/topic/Robert-Kardashian Also known as: Robert George Kardashian Written by Nick Tabor Nick Tabor is a freelance journalist and the author of Africatown: America's Last Slave Ship and the Community It Created. Nick Tabor...
Doug Burgum
  Doug Burgum American politician Actions Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Doug-Burgum Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Doug-Burgum Written by Nick Tabor Nick Tabor is a freelance journalist and the author of Africatown: America's Last Slave Ship and the Community It Created. Nick Tabor Fact-checked by The Editors of Encyclopaedia Britannica Encyclopaedia Britannica's...
Battle of Cuzco
  Battle of Cuzco Spanish history [1536-1537] Actions Cite verifiedCite While every effort has been made to follow citation style rules, there may be some discrepancies. Please refer to the appropriate style manual or other sources if you have any questions. Select Citation Style MLA APA Chicago Manual of Style Copy Citation Share Share Share to social media Facebook X URL...
Jannik Sinner
  Jannik Sinner Italian tennis player Actions Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Jannik-Sinner Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Jannik-Sinner Written by Will Gosner Will Gosner is an associate editor covering general interest topics, including film, television, and sports. He has a B.A. from the University of Chicago. He joined Britannica in 2014. Will...
Investing in speculative start-up stocks? 14 alternative fundamentals to follow
     You just bought shares in a hot new company whose stock price, you believe, has the potential to go sky-high. As a responsible investor, you now have to do your homework by regularly evaluating the company’s fundamentals.   You planned to use the price-to-earnings (P/E) ratio, but, surprise!—what earnings?What about the price-to-book (P/B) ratio? Nope! The physical assets consist of...
Saeed Jalili
  Saeed Jalili Iranian politician Actions Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Saeed-Jalili Share Share Share to social media Facebook X URL https://www.britannica.com/biography/Saeed-Jalili Written by Adam Zeidan Adam Zeidan is an Assistant Managing Editor, having joined Encyclopædia Britannica in 2018. He covers a range of topics related primarily to the Middle East and North Africa. Adam Zeidan Fact-checked...