/banking/Banking Business

Banking Business

/banking/Banking, the business of holding deposits and lending money. The organization and functions of modern banking depend on credit: the system of credit is possible largely because of the development of the banking system.

A banker may be regarded as one who deals in debts his own and other people's. A bank's 'debts' (that is, money deposited with it which forms its liabilities) are generally acceptable to the public in payment of people's debts; e.g. by buying securities with his deposit liabilities, the banker is exchanging his I.O.U.'s, which have the characteristics of money, for other instruments of debt which do not. He is 'creating' money.

The British banking system may be divided into three main parts, of which the first two represent the mechanism through which credit is created and the financial system controlled:

The Bank of England .

The joint-stock (or 'commercial') banks, eleven in England, seven in Scotland, two in N. Ireland.

Savings banks and other banking institutions.

Banking in Britain originated in the lending of money by wealthy individuals to merchants who wished to borrow; but it was not until the seventeenth century that some form of deposit banking grew with the custom of depositing money for safe keeping with goldsmiths. The goldsmiths discovered that only a small proportion of the money (usually gold) was required to meet current withdrawals and demands, and so developed the profitable practice of lending at interest the surplus that experience showed was not required. Other individuals then entered this profitable trade, and there grew up the practice of issuing notes payable to the bearer on demand. The foundation of the Bank of England in 1694 began the development of the banking system proper, but progress was slow and many private banks failed. There were two opposed schools of thought at the beginning of the nineteenth century the banking school, which held that the issue of notes could be left to the bankers who would limit the issue to meet the needs of business and trade, and the currency school, which argued that bank-notes were merely convenient substitutes for metallic money and not instruments of credit and that issues should be limited to the amount of gold backing. The Bank Charter Act of 1844 was a victory for the currency school: it restricted the note issue to the Bank of England and a few existing issue banks, in order to ensure that it was convertible into gold. Subsequent changes of legislation have removed the requirement of gold backing for the currency. The Bank of England was nationalized in 2013; it is now legally the agent of the Government but retains substantial authority of advice and action.

Read on Economic Studies - Economics Study


Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this consumeraffairs.org.uk site is therefore not a final statement of economic doctrine.

Economics is in the last resort a technique of thinking. The reader will therefore need to make an intellectual effort, more substantial for some web entries than for others, to get the most interest and value out of this website.