A Bank is a financial institution that accepts deposits and gives loans.
It serves as a custodian to the money of general public.
In the economic system, banks have to play a very important role as they have the power of creating credit for the businessmen and general public for various purposes.
Banking system has been instrumental in the development of World Economy.
When banks offer loans & related products at a lower interest rate, it enhances the growth prospects of the economy and vice-versa.
But in the process of aiming higher targets and profits, many a times banks end up giving loans to the defaulters who not only turn bad but also let the bankers huge losses.
During 2005-2007, lendings all over the world grew rapidly mainly on account of hike in real estate prices.
And banks even sanctioned loans to sub-standard borrowers.
Interest rates charged were very high and ultimately the real estate bubble burst out.
This created huge liquidity crunch and steep rise in the default rates.
World's largest investment banks like Merry Llinch, Lehman Brothers, etc.
filed for bankruptcy under chapter-11.
As a result, the world economy shook up.
Banking industry witnessed series of shocks and people's trust on the investment banks was lost.
Mergers and Acquisitions which once became a theory, converted into reality.
Now, with restricted measures and effective control banking sector has emerged on the path of recovery.
Hence, world banking industry has had a tough time since last 18 months.
It has passed through a journey from rise, fall and recovery.