BANK, primarily an establishment for the deposit, custody and repayment on demand, of money; and obtaining the bulk of its profits from the investment of sums thus derived and not in imme diate demand. The term is a derivative of the banco or bench of the early Italian money dealers.
Divisions.—In respect of constitution there is a broad division of banks into public and private; public banks includ ing such establishments as are under any special state or municipal control or patronage, or whose capital is in the form of stock or shares which are bought and sold in the open market; private banks embracing those which are carried on by one or more individuals with out special authority or charter and under the laws regulating ordinary trad• ing companies. In respect of functior three kinds of banks may be discrimi nated: (1) banks of deposit merely, re, ceiving and returning money at the venience of depositors; (2) banks of discount or loan; borrowing money on deposit and lending it in the discount of promissory notes, bills of exchange, and negotiable securities; (3) banks of cir culation or issue, which give currency to promissory notes of their own, payable to bearer and serving as a medium of ex change within the sphere of their bank ing operations. The more highly organ ized banks discharge all three functions, but all modern banks unite the two first. For the successful working of a banking establishment certain resources other than the deposits are, of course, neces sary, and the subscribed capital, that is, the money paid up by shareholders on their shares and forming the substantial portion of their claim to public credit, is held upon a different footing to the sums received from depositors. It is usually considered that for sound bank ing this capital should not be traded for the purpose of making gain in the same way as the moneys deposited in the bank; and that is, for the most part, invested in government or other securities subject to little fluctuation in value and readily convertinle into money. But, in any case, prudence demands that a reserve be kept sufficient to meet all probable require ments of customers in event of commer cial crises or minor panics.
Methods.—Of the methods of making profit upon the money of depositors, one of the most common is to advance it in the discounting of bills of exchange not having long periods (seldom more than three months with the Bank of England) to run; the banker receiving the amounts of the hills from the acceptors when the bills arrive at maturity. Loans or ad vances are also often made by bankers upon exchequer bills or other government securities, on railway debentures or the stock of public companies of various kinds, as well as upon goods lying in public warehouses, the dock-warrant or certificate of ownership being trans ferred to the banker in security. To banks of issue a further source of profit is open in their note circulation, inas much as the bank is enabled to lend these notes, or promises to pay, as if they were so much money and to receive interest on the loan accordingly, as well as to make a profitable use of the money or property that may be received in exchange for its notes, so long as the latter remain in circulation. A considerable number of the notes issued will, however, be re tained in circulation at the convenience of the public as a medium of exchange; and on this circulating portion a clear profit accrues. This rapid return of notes through other banks, etc., in ex change for portions of the reserve of the issuing bank, is one of the restraints upon an issue of notes in excess of the ability of the bank to meet them. In England a more obvious restraint upon an unlimited note issue, originating part ly in a desire for greater security, partly in the belief that the note augmentation of the currency might lead to harmful economic results in its influence upon prices, is to be found in the bank acts of 1844 and 1845, which impose upon banks of issue the necessity of keeping an equivalent in gold for all notes issued beyond a certain fixed amount.