Banks: Definition. Exercise 1.

A. Banks — the oldest and most familiar of all financial institutions — have changed greatly since their origins centuries ago, evolving from money changers and money issuers to become the most important gatherers and dispensers of financial information in the economy.

B. Banking is by no mean salone in the financial-services sector but increasingly is being pressured on all sides by key financial-service competitors — savings institutions (including savings and loan associations), credit unions, money market funds, finance companies, insurance companies, and other financial conglomerates and holding companies.

C. Bankers feel the impact of their fiercest nonbank competitors coming in from all directions:

Credit Unions and Other Thrift Institutions: Offering customers credit, payments, and savings deposit services often fully comparable to what banks offer.

Insurance Companies and Pension Plans: Providing customers with longterm savings plans, risk protection, and credit.

Security Brokers and Dealers: Providing investment and savings planning, executing security purchases and sales, and providing credit cards to their customers.

Finance Companies: Supplying customers with access to cash (liquidity) and short-to-medium term loans for everything from daily household and operating expenses to the purchase of appliances and equipment. 

Mutual Funds: Supplying professional cash management and investing services for longer-term savers.

Financial Conglomerates: Highly diversified financial-service providers that control multiple financial firms offering many different services.

D. The leading nonbank businesses that compete with banks todayin the financial sector offer many of the same services and, therefore, makeit increasingly difficult to separate banks from other financial-service providers. Nevertheless, larger banks tend to offer the widest range of services of any financial-service firm today.