HISTORY
Banking in the modern sense of the word can be traced to medieval and early
Renaissance Italy, to the rich cities in the north like
Florence,
Venice and
Genoa. The
Bardi and
Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of
Europe.
Perhaps the most famous Italian bank was the
Medici bank, set up by Giovanni Medici in 1397.
The earliest known state deposit bank,
Banco di San Giorgio (Bank of St. George), was founded in 1407 at
Genoa,
Italy.
Banks can be traced back to ancient times even before money when
temples were used to store commodities. During the 3rd century AD, banks in
Persia and other territories in the Persian
Sassanid Empire issued
letters of credit known as
Ṣakks.
Muslim traders are known to have used the
cheque or
ṣakk system since the time of
Harun al-Rashid (9th century) of the
Abbasid Caliphate. In the 9th century, a Muslim businessman could cash an early form of the cheque in
China drawn on sources in
Baghdad,
a tradition that was significantly strengthened in the 13th and 14th centuries, during the
Mongol Empire. Fragments found in the
Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent.
DEFINITION
The definition of a bank varies from country to country. See the relevant country page (below) for more information.
Under
English common law, a banker is defined as a person who carries on the business of banking, which is specified as:
- conducting current accounts for his customers
- paying cheques drawn on him, and
- collecting cheques for his customers.
In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to
negotiable instruments, including
cheques, and this Act contains a statutory definition of the term
banker:
banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as
cheques does not depend on how the bank is organised or regulated.
The business of banking is in many
English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the
business of banking or
banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:
- "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).
- "banking business" means the business of either or both of the following:
- receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period;
- paying or collecting cheques drawn by or paid in by customers
Since the advent of
EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.
BANKING
Standard Activity
Banks act as payment agents by conducting
checking or current accounts for customers, paying
cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as
telegraphic transfer,
EFTPOS, and
ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as
banknotes and
bonds. Banks lend money by making advances to customers on current accounts, by making
installment loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings too.
CHANNEL
Banks offer many different channels to access their banking and other services:
- ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller. Some ATMs provide additional services.
- A branch is a retail location
- Call center
- Mail: most banks accept check deposits via mail and use mail to communicate to their customers, e.g. by sending out statements
- Mobile banking is a method of using one's mobile phone to conduct banking transactions
- Online banking is a term used for performing transactions, payments etc. over the Internet
- Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses
- Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human
- Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a videoconference enabled bank branch.
