Banking Evolution

EVOLUTION OF BANKING

There are various views about the origin of the word ‘banking’. One view is that it is derived from the word, ‘banquet’ which means a ‘bench’. The other view is that it has originated from the German word, bane’ which means a joint stock firm. 

BANKS HAVE THREE ANCESTORS 

• Merchants
• Money lenders
• Gold smiths.

In old days merchants issued documents, which were used as money for the transaction of goods and services, moneylenders used to deal in credit. They took loan form the people on interest to give it to some other on higher rate of interest and in this way they used to make profit. Goldsmith used to keep gold and silver of the people as deposits and issued slips, which circulated as their depositors to transfer a part or whole of their deposits in the name of another depositor by issuing an order slip. This order slip gradually turned to be a cheque. With the passage of time gold smiths learned by experience that the depositors do not draw most part of the deposits and remain lying idle with them. Therefore, they used it to give loans to the people. This initiated the creation of credit money. 

DEFINITION OF BANK 

Bank is an institution, which deals in money. It receives savings of the people as deposits, which is a loan for a bank, and therefore it pays interest on it. It gives this amount of money to business enterprises as loans and receives interest on it. By keeping the rate of interest low on deposits and high on advance it makes profit. According to Prof. Crowther “bank is an institution which gets loans to lend and in this way created credit money.” 

DEFINITION OF BANKER 

• J.W Gilbert in his principles and practice of banking defines a banker in this word; “A banker is a dealer in capital, or more properly, a dealer in money. He is an intermediate party between they borrowers and the lender. He borrows of one party and lends to another”

• In law of banking Dr. Herbert L. Hart defines ‘bankers’ or ‘bank’ as: “ A person carrying on the business of receiving money, and collecting drafts for customers subjects to the obligation of honoring cheques drawn upon him for time to time by the customers to the extent of the amount available on their current accounts.

The Americans defined the term banker in a very, board sense as under by ‘banking’ we mean the business of dealing in credits, and by a ‘bank’ we include every person, firm or company having a place of business where credits are opened by deposits or collection of money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes or where stocks, bonds, bullion, bills of exchange, promissory notes are received for discount or sale.