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Banking

Main objectives of Banking Contents are following:

1. To Introduce the meaning of Banking

2. To explain, "how banks make money?"

Introduction of Meaning of Banking

Banking is the business of bank. It is to manage bank. In this management, we can include to plan, organize and control of bank. For learning banking, you should learn liabilities and assets of banks because bank has to manage the saving fund for getting good return on it by giving it on loan. M So, financial management of bank is banking in real sense.

How Banks Make Money?

In banking, bank's main aim is to make money from this business by providing services. It makes money by following steps

Step 1 : To Get Saving from Public

We all are doing some business or profession. For securing or emergency need, we save our money in banks. On the other side, our saving is the cheap source of fund. For making money,  it is very necessary to increase more and more savings from public. It is the liability of bank.

Step 2. To Keep Small Cash Reserve 

It is also necessary for keeping small cash reserve for paying customer when they need money. Suppose, I deposited $ 10 million money in bank  but after 6 months, I need 2 million $, so, I will withdraw money. So, bank will not use all money of saving of customer for his financial banking business. He may keep 10% to 15% as cash reserve and other money will use banking business.

Step 3. To Invest Money by Giving Loan

Bank gives loan. It is its investment and bank gets high  interest on it. This is the main source of his earning. More bank will give loan, more bank will earning money.

Step 4. Excess of Interest on Loan over Interest on Saving 

Excess of interest on loan over interest on saving is bank's profit.With this way, bank makes money.  Following example can explain it more deeply.



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Accounting Education: Banking
Banking
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Accounting Education
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