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Different Types of Banking System

All of us well realize to what extent banks are important in our lives. They serve the financial requirements of different categories of people in different fields like agriculture, business, and more. There are various types of Banking System

Types of Banking System

1- Group Banking

Banking system designed to be used by groups rather than individuals. A common example is a company plan offered to employees. Group banking members may have access to lower interest rates, lower fees, discounts and other perks not available to regular account holders.

Group banking can also provide a more personalized banking relationship for the members if the bank designates one representative, who is generally more knowledgeable about the group’s needs, as the point of contact for all the members of the group.

Banking System

2- Chain Banking

Chain banking is a situation in which three or more banks that are independently chartered are controlled by a small group of people. It refers to a form of bank governance that occurs when a small group of people controls at least three banks.

Usually, the controlling parties are majority shareholders or the heads of interlocking directorates. Chain banking as an entity has declined with the surge in interstate banking.

The concept of chain banking is different from group banking, in that the entities involved in the chain bank arrangement remain autonomous and are not owned by a single holding company. By contrast, the group banking model requires a holding company to own all the banks involved, effectively creating an umbrella under which all the banks operate.

3- Mixed Banking

Mixed banking is a system of banking where a bank combines both deposit banking as well as investment banking. In other words, the bank will provide short-term loans for commerce and trade and long-term finance for industrial units.

While this type of banking promotes rapid industrialization, the mixed banking system reduces the liquidity of funds of commercial banks. it difficult to pay back the borrowed funds of customers whenever they make a demand because funds get blocked when the bank gives long-term loans to industries.

4- Branch Banking

Branch banking refers to a single bank which operates through various branches in a city or in different locations or out of the cities. It offers a wide array of face to face service to its customers. Services provided by a branch include cash withdrawals and deposits from a demand account with a bank teller, financial advice through a specialist, safe deposit box rentals etc.

5- Unit Banking

Banking systems encourage either small, independent banks or banks that are theoretically independent but are in fact owned by a bank holding company.

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