This section is from the "Practical Banking" book, by Albert S. Bolles.
The term bank is supposed to be derived from banco, the Italian word for bench, the Lombard Jews in Italy having benches in the market-place where they exchanged money and bills. When a banker failed, his bench was broken by the people, and he was called a bankrupt.
This derivation of the term, however, is probably wrong. "The true original meaning of banco,"says MacLeod,"is a heap, or mound, and this word was metaphorically applied to signify a common fund, or joint stock, formed by the contributions of a multitude of persons."
A brief account of the first banking operations in Venice will dispel the haze enveloping this subject. In 1171 the financial condition of Venice was strained in consequence of the wars in which the people were engaged. The great council of the republic finally determined to raise a forced loan. Every citizen was obliged to contribute the hundredth part of his possessions to the State, receiving therefor interest at the rate of five per cent. The public revenues were mortgaged to secure the interest, and commissioners were appointed to pay the interest to the fundholders and to transfer the stock. The loan had several names in Italian, Compera, Mutuo, but the most common was Monte, a joint stock fund. Afterward, two more loans were contracted, and in exchange for the money contributed by the citizens, the commissioners gave stock certificates bearing interest, and which could be sold and transferred.
* Principles of Economic Philosophy, vol. I, p. 547.
At this period the Germans were masters of a great part of Italy, and the German word Banck came into use as well as its Italian equivalent Monte. The Italians ere long changed Banck into Banco, and the public loans or debts were called Monti or Banchi. Thus an English .writer, Benbrigge, who wrote in 1646, mentioned the "three bankes" at Venice, by which he meant the three public loans, or Monte, that we have described. Likewise Count Cibrario, who wrote a work on Political Economy in the Middle Age, says, "it is known that the first Bank, or Public Debt, was erected at Venice in 1171." Other proof of the same nature might be added to show that Banco in Italian meant a fund formed by several contributions; and the Bank of Venice was really the first funding system, or system of public debts.
"A banker," says Gilbart, " is a dealer in capital, or, more properly, a dealer in money. He is an intermediate party between the borrower and the lender." The difference between the rate received by the banker, for the use of the money loaned by him,, and the rate he has to pay for it, is his profit.
"By this means he draws into active operations those small sums of money which were previously unproductive in the hands of private individuals, and at the same time furnishes accommodation to those who have need of additional capital to carry on their business." In other words, a bank is a means for organizing capital whereby its full power may be utilized. The function of a bank in storing up capital, and thus increasing its power, has been likened to that of a dam put across a stream. Before the erection of the structure, the waters coursed their way through wood and meadow, contributing, it is true, to the diversity and beauty of the scene, beside satisfying a needful want of man and beast. To the poet, the stream gave forth an unregarded music, while a De Quincey would hearken with profound emotion and awe to the "sound-pealing anthems, as if streaming from the open portals of some illimitable cathedral." But by storing up the waters, a force is collected which can be used for running the largest factory, and thus ministering in a very potent way to advance the material prosperity of man.
There are several kinds of banks. They may be divided first into private and public banks. Private banks are conducted by individuals without incorporation. They are very numerous in our country. The number given in the Banker's Almanac and Register, not in-cluding brokers, for the year 1884, was 3,387. They exist in all the States and Territories. Some of them have flourished for a long period, and are regarded very sound, and worthy of the highest credit.
Chartered banks may be divided into two classes: those organized and existing under the laws of the United States; and State institutions. The latter may be again divided into Deposit and Discount banks, Savings banks and Trust companies. Each class will be described hereafter.
The business of banking consists (1) in receiving deposits of money on which interest may or may not be allowed; ( 2 ) in making advances of money, principally in the way of discounting notes; (3) in effecting the transmission of money from one place to another. This is true of the ordinary banks of deposit and discount, both State and National.
The disposable means of a bank consists (1) of the capital paid down by the shareholders; ( 2 ) the money deposited with it by its customers; (3) the notes it can circulate; (4) the money it receives in the course of transmission, and which, of course, it must repay at another place.
The expenses of a bank may be thus classified: rent, taxes and repairs of the banking-house, salaries of officers, stationery and postage. To this may be added interest upon deposits, if allowed.
The profits of a bank consist of that portion of its total receipts, including discount, interest, dividends and commissions, which exceed the total amount of expenses.