How does the banking structure work?

How does the banking structure work?

Banks manage the flow of money between people and businesses. For example, banks offer deposit accounts that are practically secure places for the safekeeping of individuals’ capital. Further, the banks utilize the money to give loans to different businesses and individuals.

When the banks lend capital, they charge interest over the borrowers. Only a tiny part of the interest is returned to the original deposit account holders as the interest over the deposit. In simple words, a bank makes money from the interest on loans also the different types of fees they charge their customers. The fees differ from product to product, such as buying different bank account types or any financial services.

The banks are highly regulated and overseen by the Federal Reserve System and international financial institutions, coordinated with state regulatory agencies to maintain a proper guideline. There is no stop to regulations. Many federal agencies include the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the Office of the Comptroller of the Currency (OCC).

Types of Banks

All the banks look the same, but several different banks handle different transactions sections. Like the Retail banks, Central banks, Investment banks, Commercial banks, Savings and loan associations, Credit unions, and Shadow banks.

How will cryptocurrency impact banking?

When the world was hit with the 2008 financial crisis, the policy by the central banks played a vital role in creating the crisis. The best response to the problem was Bitcoin (BTC USD). It introduced the world to peer-to-peer technology and decentralized system. Bitcoin has the potential to nuke the whole banking system where only the central authority is responsible for decisions, which affects the entire countries’ economic fortunes.

The world of cryptocurrency is steadily expanding, and its popularity is on the rise, but the banks are hesitating to adopt the uses of digital assets. It is because the banks believe that the risks outweigh the benefits. However, some regulatory agencies, the Office of the Comptroller of the Currency (OCC), work with banks to change the perception of digital currencies. Such agencies believe that these digital assets will positively impact financial institutions and drive them to the new era of innovation and efficiency.

Cryptocurrencies have started giving ordinary people a new and easy way of financing, but they have the conception that the banks are threatened. With the coming of age, the banks will have to use the technology of cryptocurrencies. If they choose not to use it, they can become outdated and redundant.

The most important part to remember about cryptocurrencies is that they can be easily translated into fiat currency and can be used for day-to-day transactions. The central bank doesn’t need to issue it or get subjected by the central monetary authority. The above statement is enough to cause panic with the traditional banks while improving their services.