Banks are not private institutions. They are public corporations; therefore, they were granted a governmental charter to engage in public business and the public’s business and this includes banking.
A bank is a local, national or international official bank corporation that is vested with powers of ownership, borrowing, issue, underwriting, issuing, pledging, settling, administering, collecting, making, accepting, paying, and transmitting currency. Banks, as fiduciaries to their customers, have to protect the depositors’ interests in the interest of the business that is doing business with them. Banks are also required to protect the depositors in case the business fails.
Banks open their own accounts with their own stock, as well as with other banks. Also, banks maintain customer accounts at several other banks.
The Federal Reserve System is a central bank that was established by the government. It functions like the Fed in the Federal Reserve Bank Act of 1913. The Federal Reserve System is the government-owned and operated central bank for the country.
The banking industry is responsible for almost 70% of the U.S. Gross Domestic Product (GDP). That is why they are the number one lender of mortgages. During the worst of the sub-prime lending crisis, banks were not only in trouble but they were also losing money.
This was the result of the housing market collapse that started in 2008, the financial community mismanaged the situation and caused lenders to fail, thereby causing financial disaster. These lending mistakes cost our economy billions of dollars. For example, if the lending mistakes had been avoided, most mortgage payments would not have gone unpaid. Even with the sub-prime lending mistakes, the lenders were still profitable enough to pay off the bad mortgages, thus reducing the negative effects on the credit ratings of many people who had defaulted on their mortgage payments.
Although there are many regulations and rules that should be followed, it is still a common practice for banks to keep their customers in the dark about the intricacies of their policies. Some banks do not inform their customers of their consumer protection laws because it is against the rules.
In order to avoid foreclosure on your home, banks may allow you to pay a certain amount of mortgage in late fees and penalties before charging you with negative items on your credit report. Banks are only permitted to charge these amounts for a maximum of five years.
Banks also provide long-term loans such as credit cards, home equity loans, and unsecured loans. In some cases, the lender may require a down payment to be made before approving a loan. This is not true for all lenders, however.
Most banks do not do a credit check. In fact, many banks consider your bank account a credit score and will use your bank account to decide whether or not to extend credit to you. If you apply for a credit card from a bank, the bank may see your bank account as a credit score.
Bailing out a bank that you are a customer of is similar to a bankruptcy proceeding. In the event of a bank failure, creditors often allow the federal government to seize assets that are owed to creditors. The government tries to foreclose by the same procedure as a bankruptcy proceeding; it then purchases the bank’s assets and proceeds to pay off creditors and at the same time pays back all debts of the bank to the federal government.