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Conventional Banking Principles

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B) Principles of Conventional Banks
Mainly based on the man rules, the conventional banking system, at the difference of the Islamic banking system, major principles are fixed or set by international financial institutions and governments of the countries in question and do not follow or shift to any religious book or principles to guide them, this is why the name of the man’s banks occurs when it talks about conventional banks. This system by definition is a totally interest based model, where banks play the role intermediary between the borrowers and the savers or depositors and make profit on the interest earned on the credit accorded to the borrower. So here are the fundamentals on what the major principles of Conventional Banks are based …show more content…

So to attain this objective, commercial banks principally work on how to develop their investments (companies’ investment, loans) in order to gain interest on it so they can make a profit. The higher will be the number of investment that the banks will achieve the higher their chance to gain a high profit will be.
The principle of solvency is essential too, this one define the capacity of the banks to stay financially stable or having a sufficiency in capital. The conventional bank ability to carry out their capital which mainly came from the deposits depends on the ability of the bank to inspired trust to their customers.

 Principle of Liquidity: Liquidity by definition refers to the ability of an asset to convert in cash without losing its value. So the principle of liquidity is an important one in the conventional banking system for the lending and deposits, let’s explain why in a simple example: In deposits, since the money is managed in her three form in the conventional system (medium of exchange, store value and commodity), this makes it occurs as most liquid asset according the economist John Maynard Keynes (1883-1946). So interest gain by the …show more content…

They make profit by according loan and credit to individuals and companies, gaining by margin between the interest of borrowing and lending or they gain also in investing on promising project (buildings for companies against part on the society). On the other hand, we have the investment banks who offer services concerning the investment, they target big companies, government and institutions, and they take action as underwriter in issuing bond and different king of securities. Conventional banks offers also others services like foreign exchange,

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