Nowadays, in most countries the issue of bank-notes has become a prerogative of the Central Bank. The first bank notes issued in Europe were by the Bank of Stockholm in 1661. The amount depended on the banker's judgement of the possible demand for specie. Another way in which a bank could create claims against itself was by issuing bank notes.
ALDL IN BANK FULL
In the first case, interest was charged on the full amount of the debit, and in the second, the customer paid interest only on the amount actually borrowed. The customer could overdraw his account at once or up to a specified limit. It was only a short step from making a loan in specie or coin, to allowing customers to borrow by check. About the same time, a practice grew up, whereby a customer could arrange for the transfer of part of his credit balance to another party by addressing an order to the banker. As a means of attracting coin for sorting, they were prepared to pay a rate of interest. They dealt in bullion and foreign exchange, acquiring and sorting coin for profit. In the 17th century, English bankers begun to develop a deposit banking business. Another form of early banking activity was the acceptance of deposits based on oral agreement between the parties whereby the customer would be allowed to overdraw his account.
Another group of banking institutions was the merchant bankers, who dealt in goods and in bills of exchange, providing for the remittance of money at distance through one of its agents elsewhere. Early “banks” dealt primarily in coin and bullion, their business being money changing and the supplying of foreign and domestic coin.
I The development of banking system Banking is known about it prior to the 13th century. In some cases, the US Federal Reserve System have been established specifically to lead or regulate the banking system the Bank of England have come to perform these functions through a process of evolution.įinance companies, savings banks, investments banks, trust companies are often called banks, but they don't perform the banking functions described and are only financial intermediaries, cannot create money, they can lend no more than savers place with them.
They are often responsible for formulating and implementing monetary and credit policies, usually in cooperation with the government. These are the essentials of deposit banking as practiced throughout the world today, with the partial exception of socialist-type institutions.Īnother type of banking is carried out by central banks, bankers to governments and “lenders of last resort” to commercial banks and other financial institutions. The claims against the bank can be transferred by means of checks or other negotiable instruments from one party to another.
The amount of credit may considerably exceed the sums available to it in cash, but the bank is able to do this, only as long as the public believes the bank can and will honour its obligations. Provided it honours its promises, a bank can create credit for use by its customers by issuing additional notes or by making new loans which in their turn become new deposits. Only in this way can confidence in the banking system be maintained. It must also keep a proportion of its assets in form that can readily be converted into cash. The banker makes profit by borrowing at an rate of interest and lending at a higher rate and by charging commissions for services rendered.Ī bank must always have cash balances on hand in order to pay its depositors upon demand or when the amounts credited to them become due. With these resources and also with the bank's own capital, the banker makes loans or extends credit and also invests in securities. The banks of the banking business is borrowing from individuals (firms and occasionally governments)- receiving “deposits” from them. The principal types of banking in the modern industrial world are commercial banking and central banking.Ī commercial banker is a dealer in money and in substitutes for money, such as checks or bills of exchange.