'Depository Bank' is explained in detail and with examples in the Corporate Finance edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
A Depository Bank refers to a facility like an office, building, or even warehouse that acts as a depository for safeguarding and storage purposes. This might be a bank, a vault, an organization, or even a financial institution which inventories and helps with the act of trading securities. The term also pertains to any depository institution which takes in financial deposits from their clients.
These depository institutions deliver financial services to both business and personal customers. These do not have to be cash-based only. They could be stocks and bonds certificates. The institution will inventory the securities. They often keep them in an electronic format called book-entry form. They might also hold physical paper certificates or dematerialized virtually-based certificates as well.
Depository banks carry the primary function in this regard of transferring stock shares ownership from the seller of an investment to the buyer as the trade becomes executed. They also assist with reducing paperwork needed to execute trades. They also increase the speed at which the transfer process will be completed. These depositories also get rid of any risk in maintaining physical format securities and keeping them from loss, theft, damage, fraud, or delay in actual delivery.
There are other depository services these institutions carry out for their clients. These include savings and checking accounts and also transferring funds electronically via debit cards and online banking. They also handle electronically submitted payments as part of these services. Customers surrender their cash to these banks and financial institutions under the core belief that the firm will simply hold on to them and then return them as the customer requests the money back upon demand.
In reality, the banks cheerfully take the clients’ money and then pay them interest on this money slowly over time. As they hold the customers’ money, they loan it out to other businesses and individuals as business loans and mortgages. They do this with the goal and hope of generating a higher amount of interest on the money than the amount which they pay out to their customers as interest.
In the field of depository institutions are three different types. These are commercial banks, savings institutions, and credit unions. All of them count on deposits from their clients in order to obtain their primary sources of funding. The Federal Deposit Insurance Corporation insures these consumer accounts up to a limit of $250,000 per account in case of bank failure.
Commercial banks prove to be for profit enterprises that represent the biggest of the depository institutions. These often times mega-banks provide a vast array of services to businesses and consumers in the form of commercial and consumer lending, checking and savings accounts, certificates of deposit, investment products, and credit cards. Their goals in accepting inbound deposits are to offer them back out to still other clients in the form of real estate loans, commercial loans, and mortgage loans.
With savings institutions, these are also for profit ventures called savings and loan institutions. They concentrate their efforts mostly on consumer mortgage lending although they do also provide commercial loans and consumer credit cards. The customers deposit their money in an account. This purchases shares within the firm. In one fiscal year, savings institutions might approve 710 real estate loans, 250,000 personal and automobile loans, and 75,000 mortgage loans. They then collect interest on all of these various loans, a portion of which pays the interest on their clients’ deposits.
Credit Unions are quite different from the above two previous types. They are not for profit groups which instead concentrate their efforts on customer service. The customers bring in their deposits to the account. This is much like purchasing shares within the credit union in question. The earnings of the credit union become distributed back to the customers as dividends on a regular basis.