Meaning, Definitions and Features of a Bank14/12/2022 1 By indiafreenotes
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because banks play an important role in financial stability and the economy of a country, most jurisdictions exercise a high degree of regulation over banks. Most countries have institutionalised a system known as fractional reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, the Basel Accords.
Banking in its modern sense evolved in the fourteenth century in the prosperous cities of Renaissance Italy but in many ways functioned as a continuation of ideas and concepts of credit and lending that had their roots in the ancient world. In the history of banking, a number of banking dynasties; notably, the Medicis, the Fuggers, the Welsers, the Berenbergs, and the Rothschilds; have played a central role over many centuries. The oldest existing retail bank is Banca Monte dei Paschi di Siena (founded in 1472), while the oldest existing merchant bank is Berenberg Bank.
- According to R.S. Sayers, “Banks are institutions whose debts are commonly accepted in final settlement of other peoples debts.”
- Oxford Dictionary defines a bank as “an establishment for custody of money, which it pays out on customer’s order.”
- According to Peter Rose, “Bank is financial intermediary accepting deposits and granting loans.”
- According to F.E. Perry, “Bank is an establishment which deals in money, receiving it on deposit.”
- According to R.P. Kent, “Bank is an institution which collects idle money temporarily from the public and lends to other people as per need.”
- According to P.A. Samuelson, “Bank provides service to its clients and in turn receives perquisites in different forms.”
- According to Cairn Cross, “Bank is an intermediary financial institution which deals in loans and advances.”
- According to W. Hock, “Bank is such an institution which creates money by money only.”
The modern bank refers to an institution having the following characteristics:
- Bank also deals with credit: it has the ability to create credit by expanding its liabilities.
- Bank deals with money: it accepts deposits and advances loans
- Bank is commercial institution: it aims at earning profit.
Dealing in Money
Bank is a financial institution which deals with other people’s money i.e. money given by depositors.
Acceptance of Deposit
A bank accepts money from the people in the form of deposits which are usually repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of its customers.
Individual / Firm / Company
A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.
Payment and Withdrawal
A bank provides easy payment and withdrawal facility to its customers in the form of cheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.
A bank lends out money in the form of loans to those who require it for different purposes.
Agency and Utility Services
A bank provides various banking facilities to its customers. They include general utility services and agency services.
Profit and Service Orientation
A bank is a profit seeking institution having service oriented approach.
A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money.
A bank’s main activity should be to do business of banking which should not be subsidiary to any other business.
Ever increasing Functions
Banking is an evolutionary concept. There is continuous expansion and diversification as regards the functions, services and activities of a bank.
A bank should always add the word “bank” to its name to enable people to know that it is a bank and that it is dealing in money.