Banks are financial institutions chartered by federal and state governments to perform functions like holding and paying interest on deposits and maintaining and honoring customers' cash account transactions. Converting a parent company to a bank holding company has become popular amongst U.S. institutions since the credit crisis since banks are eligible for special Federal Reserve assistance. Banks can be commercial, retail or investment banks depending on their customer focus.
Since credit markets began freezing up in mid-2008 most U.S. investment banks have either converted to commercial banks, like Morgan Stanley, or been taken over by a larger one like Bank of America or JPMorgan Chase & Co. As well as accepting deposits and maintain accounts, banks also issue and receive cash equivalents like checks, notes, securities and loans.
Deposits of up to $100,000 in chartered U.S. banks are insured by the Federal Deposit Insurance Commission (FDIC), although some countries like Australia, Germany and Ireland have recently confirmed they will insure unlimited deposit amounts. And although banks pay interest on these deposits, they also charge their account-holders fees for everything from account maintenance to per-check writing to ATM withdrawals. Credit Unions operate under similar principles to banks except they require account holders to join their co-operative; their deposits are insured by the National Credit Union Share Insurance Fund.
The latest financial-services company to become a bank was American Express (AmEx), which made the switch November 10, 2008 to help it grow deposits and gain access to special Federal Reserve funding arrangements. American Express previously specialized in issuing travelers checks and credit cards, whose receivables it previously bundled into debt securities to sell into a credit market that has since dried up. AmEx also operated two smaller banks, American Express Bank and American Express Centurion Bank, that both offered loans and certificates of deposit.