Definition of Banking

Definition of Banking

On account of multifarious activities of modern banks, the 'Bank' or 'Banking' has been defined by several economists as follows:

Dr.L. Herber and L. Hart define the banker, 'as one who in the ordinary course of business honours cheques drawn upon him by persons from and for whom he receives money on current accounts'.

Chamber's Twentieth century Dictionary defines a bank as an, 'institution for the keeping, lending and exchanging etc. of money'.

According to Crowther, 'The banker's business is to take the debts of other people to offer his own in exchange, and thereby create money'.

Prof. Kent defines a bank as, 'an organisation whose principal operations are concerned with the accumulation of the temporarily idle money of the general public for the purpose of advancing to others for expenditure'.

It is evident from the above definitions that a bank is an institution which accepts deposits from the public and in turn advances loans by creating credit.

History of Banking

The name 'bank' is usually used in the sense of commercial bank. The word 'bank' seems to have originated from the Germanic world 'banck' which means a joint stock fund or heap. It is possible that the word has also been derived from the French word 'banque' and the Italian word 'banco'. The Italian word 'banco' refers to a bench at which the money changers or mediaeval bankers used to change one kind of money into another and transact their banking business. Thus, the early banking was associated with the business of money changing.

The first public banking institution was The Bank of Venice, founded in 1157. The Bank of Barcelona and the bank of Genoa were established in 1401 and 1407 respectively. These are the recognized forerunners of modern commercial banks. Exchange banking was developed after the installation of the Bank of Amsterdam in 1609 and Bank of Hamburg in 1690.

The credit for laying the foundation of modern banking in England goes to the Lombards of Italy who had migrated to other European countries and England. The bankers of Lombardy developed the money lending business in England. The Bank of England was established in 1694. The development of joint stock commercial banking started functioning in 1833. The modern banking system actually developed only in the nineteenth century. In India, the first modern bank 'Bank of Bengal' was established in 1806 in the Bengal presidency.