Bank – What is Bank – History of Banking

A bank, also referred to as an institution of credit or a deposit institution, is a financial institution accepting public deposits and making demand deposits, also known as often referred to as bank accounts; they also offer different kinds of financial services like loans. The banking system, also known as it’s the system of banking, is the group of institutions or entities that offer the services of banks within a particular economy. The globalization process and globalization encourage the establishment of the concept of a universal bank. Similar to it is the Spanish phrase “banco” is”banco” is the Greek term ) that means bench translates to ” table. ” In the context of financial transactions, for instance, like the role for the money exchanger, the word refers to the counter that handles the transaction of money.


The concept of modern banking began in the 14th century, in the thriving cities of Renaissance Italy; however, in many ways was an evolution of ideas and concepts about credit and lending, which had their origins in the old world. In the time of banking, there have been a variety of banking dynasties – including the Medicis and the Fuggers, the Welders and the Berenbergs and the Rothschilds- played an integral role through the years. The oldest retail bank in existence can be found at Banca Monte Dei Paschi di Siena (founded in 1472) The oldest bank that is a merchant can be found in Berenberg Bank (founded in 1590).
A bank is an bank licensed to accept deposits and lend. They can also offer financial services like money management as well as currency exchange and secure deposit box. There are many different types of banks such as commercial or corporate banks, as well as investment banks. In the majority of nations, banks are regulated by the government of the country and central banks.
The term “bank” refers to a financial institution that has been licensed to accept deposits as well as make loans.
There are a variety of banks like commercial, retail and investment banks.
In the majority of countries, banks are controlled by the central government and central banks.

Definition of Bank

Definition of”bank” varies from one country to the next. Visit the appropriate pages of the country for more details.

According to English general law, the term ” banker can be defined as one who is engaged in the business of banking through managing current accounts for their customers, making payments on checks drawn on them, and also collecting checks for their customers.

In the majority of common law jurisdictions, there is the Bills of Exchange Act that regulates the law in relation to negotiable instrument, which includes cheques. The Act includes a statutory definition of the term “banker as a person who is comprised of people that are not incorporated, but that carry out the banking business’ (Section 2, Interpretation). Although this definition might seem to be odd, it’s actually a necessity, as it guarantees that the legal foundation for bank transactions, such as cheques is not dependent on how the institution is organized or controlled.

The banking industry is a common practice in many countries that are not defined by statute , but rather through common law, which is the definition given above. In different English common law countries, there are statute-based definitions for the banking industry or business in banking. In analyzing these definitions it is crucial to remember that they define banking as a business in the context of law, not necessarily as a general rule. Particularly, the majority of these definitions come drawn from legislation with the goal of supervising and regulating banks, rather than overseeing the actual banking business. In many instances the definitions in the statutes closely matches the common law definition. Examples of statutory definitionsinclude:

Type of Bank

  1. Central banks are usually owned by the government and are charged with quasi-regulatory duties like overseeing commercial banks or regulating their cash rates of interest. They typically offer liquidity to banks and are an emergency lending institution of the last choice in the event of an emergency.
  2. Commercial banks is the name used to describe a regular bank to differentiate the difference between it and an investment banking. Following the Great Depression, the U.S. Congress required that banks would only be involved in banking, while investment banks were only allowed to engage in financial market activities. Since both need to be separate ownership, some people use”commercial bank” to refer to a “commercial bank” to refer to a bank, or a branch of a bank which typically handles loans and deposits from large companies or corporations.
  3. Community bank are locally-owned financial institutions that allow employees to take local decisions in order to provide their customers with the best service and their partners.
  4. Community-based development banks are regulated banks that provide credit and financial services to populations or markets that are not served.
  5. LDBs are land-development banks The banks that specialize in that provide long-term loans are referred to as Land Development Banks (LDB). The background of LDB is very long. The very first LDB was founded in Jhang located in Punjab in the year 1920. The primary goal of LDBs is to encourage the growth of the land, agriculture and to increase the production of agricultural products. The LDBs offer long-term loans directly to their members via their branch offices. [33]
  6. Credit unions or co-operative banks are non-profit cooperatives controlled by depositors and typically providing rates that are more favorable than banks that are for profit. The majority of memberships are restricted only to the employees belonging to a specific business and residents of a specified region, members of a specific group of people or religious organisation as well as their immediate families.
  7. Banks for Postal Savings Savings banks that are affiliated with postal systems of national importance.
  8. Private banks are banks that handle the assets of wealthy individuals. In the past, a minimum amount of US$1 million was needed for opening an account but in recent time, many private banks have reduced their entry requirements to $350,000 for investors who are private. [34]
  9. Offshore bank banks are those that are located in countries with lower taxation and regulatory. Many offshore banks are basically private banks.
  10. Savings Bank in Europe Savings banks gained their origins in the 19th century or even as early as the 1800s. Their initial goal was to offer easily accessible savings products to every segment of the populace. In certain countries, banks for savings were founded on the initiative of the public In other countries the case, socially-minded individuals built foundations that would eventually serve as the infrastructure needed. In the present, European savings banks have maintained their focus on retail banking: payment and savings products, credit as well as insurances for individuals or small – and medium-sized companies. Apart from their focus on retail They also stand out from commercial banks due to their distribution networks that are decentralised that provides regional and local reach – as well as the socially-conscious approach they take to society and business.
  11. Building society as well as Landesbanks are institutions that offer retail banking.
  12. ethical banks These are banks that value transparency in all their activities and only make investments that they believe as socially responsible investments.
  13. Direct or internet-only bank is a online-only or direct banking institution is a type of bank with no physical branch of a bank. Most transactions are completed by using ATMs as well as electronically transferred funds as well as depositing direct through an online portal.
  14. Islamic banking institutions follow the principles that are a part of Islamic legality. This type of banking is based around established rules that are based upon Islamic laws. Every banking activity must be free of interest, which is prohibited in Islam. Instead, banks make profits ( markup) and charges for credit facilities it offers to its customers.
  15. Investment banks
    1. The investment banks ” underwrite” (guarantee the sale of) bonds and stock they trade for themselves, create markets, offer an investment administration and advice to companies regarding financial market processes like mergers and acquisitions.
    2. Merchant banks were historically banks that were involved with the business of trade financing. However, the modern definition is that banks provide capital to companies through shares, not loans. Contrary to the venture cap which are a type of bank, they do not tend to invest in startups.
    3. Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance – hence the term bancassurance, a portmanteau word combining “banque or bank” and “assurance”, signifying that both banking and insurance are provided by the same corporate entity.

Standard business of a Bank

The Bank act as payment intermediaries by managing the checking and current account on behalf of customers making the cheques drawn by clients in the bank, as well as collecting cheques that are deposited into accounts held by customers’ current accounts. They also allow customer payments through other payment options including Automated Clearing House (ACH) wire transfers, EFTPOS, telegraphic transfer and automated ATMs (ATMs).

Banks can borrow money by accepting the funds that are deposited in current accounts, and by taking the term deposit and also by issuing debt-related securities such for notes on banks or bond. Banks lend money by offering advances to clients with current accounts, through the installment loan and also by investing in debt securities that are marketable and other types of lending.

Banks offer various payment services and having an account with a bank is thought to be essential by the majority of businesses as well as individuals. Non-banks offering services for payment, such as Remittance companies are typically not considered to be a suitable alternative to a bank account.

Banks can make new money through loans. The new loans made to the banking system create new deposits within the system. The amount of money available is typically increased through lending, and decreased when loans are repaid more quickly than they are created. For the United Kingdom between 1997 between 1997 and 2007 there was a rise in the amount of money available that was mostly due to greater bank lending that pushed up the cost of property and to increase the amount of private debt. The amount of money that was in the economy, as measured by the M4 index of the UK was a change up from PS750 billion PS1700 billion in the period between 1997 and 2007 most of this increase was resulted from banks lending. [20] If all banks boost their lending together the banks can anticipate more deposits to come back to them, and the amount of money available in the economy will grow. Insufficient or risky lending may result in borrowers defaulting and the banks will then are more vigilant, and there’s less lending, and consequently less money, meaning that the economy could change from boom to bust , as was the case with the UK as well as numerous other Western economies following 2007.

Business Model of a Bank

Banks can earn money through a variety of methods, such as fees for transactions, interest, as well as financial guidance. The most popular method is to charge the interest on the money it lends to its customers. The bank makes money from the difference in the amount of interest it pays on deposits as well as other sources of money and the amount of interest charged in its lending operations.

The difference in this is known by it is the difference between the price of the funds and the loan interest rate. The profitability of lending has been volatile and dependent on the demands and abilities of the customers and the phase that the economic cycle. Financial advice and fees make up an increasingly stable source of revenue and banks have placed greater focus on these revenue streams to improve the financial results.

Over the last two decades, American banks took various measures to ensure they are profitable and able to respond to ever-changing market conditions.

  • This is the first step, and it includes this legislation, the Gramm-Leach Bliley Act which permits banks to join again with insurance and investment companies. Combining investment, banking, and insurance functions can allow traditional banks to respond to growing consumer demand in the form of “one-stop shopping” through the possibility of the cross-selling of their products (which banks believe, will improve the profitability of their business).
  • The second is that they have increased the application for credit-based risk pricing from business loans to consumer loans that means they are charging higher interest rates to clients who are believed to have more risky for credit and therefore have a higher likelihood to being in default with loans. This offsets negative effects of bad loans, and lowers the cost of loans to those with better credit scores, and also provides credit options to high risk customers that would otherwise be rejected credit.
  • Third, they’ve tried to expand the options of payment processing accessible to the general public as well as corporate clients. They offer debit cards and prepaid cards, smart card as well as credit card. They allow customers to make transactions easily and ease their use in time (in some countries that have not yet developed financial systems, it’s typical to pay in cash, even carrying bags of cash to pay for a home).

However, due to the convenience of credit card purchases however, comes a greater chance that consumers be in financial trouble and end up with a lot of debt. Banks earn revenue by selling card products via fees and interest charged to cardholders as well as transaction charges to merchants [22that accept card payments that accept card issued by the bank to make payments.

Finance § Risk management of Banking Sector

Banks must deal with many risk when conducting their business. How they manage these risks and comprehended is a major factor in profitability, as is the amount of capital the bank has to have. Capital for banks is primarily comprised from the equity, retained earnings and subordinated debt.

The principal dangers faced by banks are:

Risk of credit The risk of losing that results from the borrower’s failure to make the payments on time as they were they were promised. [25]
Risk of liquidity risk: the possibility that a specific security or asset can’t be traded at a sufficient speed in the market to stop the risk of losing (or generate the necessary profit).
Risk of market Risk to the extent that the portfolio’s value, whether an investment or trade portfolio will decline due to the shift in the value of market risk elements.
Operational Risk Risk arising from the performance of a business’s functions.
Risk of reputation is a kind of risk related to reliability of the business.
Risks of macroeconomic risk: the risks that relate to the overall economy that the bank operates within. [26]
Capital requirement is a bank regulation. Capital requirement is an important banking regulation that establishes an environment within the framework of how a depository or bank institution is required to be able to manage their account balance. The categorisation and classification of assets and capital is extremely uniform in order to make it assessed in a risk-weighted manner.

Following the crisis in the financial markets of 2007-2008 The regulators have compelled banks to create contingent convertible bonds (CoCos). They are capital securities that are hybrid which absorb losses according to their contract terms as long as the total capitalization of the bank that issued them drops below a specific level. In the process, debt is reduced and the bank’s capitalization gets an increase. Because of their capacity to absorb losses CoCos can meet the requirements of capital required by regulators.


History


Ancient[edit]
The idea of banking could have been introduced in the earliest times of Assyria and Babylonia by merchants who offered the loan of grain as collateral in a barter system. The lenders of ancient Greece and throughout the Roman Empire added two important advancements which was that they accepted deposits as well as altered the way they dealt with money. The archaeology of this time in the period of the ancient China in China and India also reveals evidence of loans to the money market.

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