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Banking System

Definition

The banking system refers to all commercial banks and other financial institutions that provide services such as accepting deposits from customers, making loans, facilitating payments, managing investments, etc.

Analogy

Think of the banking system as a giant "financial hub." Just like how different airlines connect at an airport hub allowing travelers to easily switch flights between destinations; similarly, various banks come together within a banking system providing essential services that allow money flow between individuals and businesses.

Related terms

Commercial Banks: These are institutions that accept deposits from customers (individuals/companies), provide loans/credit facilities (mortgages/auto loans), offer checking/savings accounts along with other basic financial services.

Central Bank: A central bank, like the Federal Reserve, is responsible for overseeing and regulating the banking system, conducting monetary policy, and maintaining financial stability.

Deposit Insurance: Deposit insurance is a guarantee provided by governments or agencies (like FDIC in the US) that protects depositors' funds up to a certain amount if a bank fails. It helps promote confidence and stability in the banking system.