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What is Traditional banking? Definitive Guide

What is the definition of Traditional banking?

The Traditional banking system is simply the banking system where the financial institution (Middlemen) provides the financial services to the customer by accepting deposits from the public and creates demand deposit.

The traditional banking is none other than banking facilities that are provided by the banking institutions to their customers.

This Traditional facilities have been running from a long period and is still continuing in many rural areas,

To give a clear example;

Most traditional banking institution are positioned in different branches where the customers in the available position can visit in order to deposit or withdraw their money.

The Old system of customers visiting the bank’s branch and depositing their money and withdrawing their money has been a long-followed process and it is still into practice in recent times but many people now prefer to use Decentralized banking services built on a Blockchain.

Features of the Traditional Banking

The brief features of Traditional Banking are as follows:

  • The Banking Institution needs to maintain high amount of capital in order to maintain branch banking
  • A central head office controls the working of branch banking
  • Customers have to visit the branch in order to make deposit and withdraw their money from the bank.
  • The branches of the banks are located at various region through the wield
  • The number of branches of a bank depends on the capacity and principles of the bank

Benefits of Traditional Banking

The controversy that arises in the mind of the customers of a bank is that whether they should make their deposit by visiting the branches physically or deposit it through internet (i.e. by the use of online banking).

In today’s world both the facilities of banking i.e. e-banking and branch banking have significant value and the e-banking facility has much more importance. The funds are better protected by both the system as the conventional banks and the online banking are considered to be secured at Deposit Insurance Agencies . Moreover, every system has got a pros and cons of its own.

This are the following benefits of practising Traditional Banking:

  • The speed of accessing the fund is the main benefit.
  • When required the customers can interact directly with the bank manager or the any account representative.
  • There is more security because the customers can get hard copy of the document for the deposit made by them which also signed by the bank staff. The E-banking provides the service to the customers of the bank i.e. to submit, transfer fund, check the bank statement etc but by the means of the website that is provided by the bank in over the internet, the customer does not have to visit the branch. Therefore, to compare the pros of the E-banking system with the Traditional Banking. These are the following advantages of the E-banking system:
  • The customer can avail the service any time and from everywhere, only the thing required is the internet and a computer or mobile.
  • The customers are not required to wait in a queue.
  • The payment of bills, fund transfer, checking of the bank statement etc everything is possible.
  • Transportation cost is reduced, as the customer do not have to travel to the branch for the banking purpose.
  • The customer does not require to worry about any fraud, because any kind of unauthenticated activity related to the customer’s account is notified to the customer by means of SMS or email.

Traditional Banking Regulation

Banks play a central role in the world’s economies yet have one of the most fragile of business models.

Bank regulators shave the same objective in making sure banks do not take risks that are inappropriate for their size, capital, lines of business, ownership structure and other factors.

The level of scrutiny and regulation has intensified in the wake of the 2008–2009 global financial crisis(GFC), when banks deemed too big to fail had to be bailed out in the US and Europe for fear their problems could cause a systemic collapse in the international financial system.

Since the GFC, the Basel Committee on Banking Supervision (BCBS) of the Bank for International Settlements (BIS) has updated the Basel accords that act as the basis for regulatory structures in most countries around the world. Basel III, the latest iteration of the accords, is being implemented in stages and raises the amount of reserve capital that banks are expected to keep in hand to protect them against changes in the market.

Risks inherent in the banking business model have caused policymakers to impose intrusive, intensive, and ongoing oversight over banking organizations. These risks make it imperative for regulators to closely monitor banks financial condition and corporate governance system.


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