A commercial bank, for the purposes of the present discussion, is an institution of credit or an institution whose purpose it is to facilitate or effect exchanges without the use of money. Every bank maintains a money reserve and has money transactions over the counter. It is not true, therefore, that it carries on its business without the use of money, but merely that in practice it reduces the use of money to a minimum. Nevertheless, it remains entirely true that the object of the bank is to facilitate exchange without the use of money - that is to say, to provide or furnish credit as a means of exchange. It is a credit institution.

Banking and credit are thus the two correlative ideas whose analysis and treatment should proceed together. The ideas of money and monetary science should, so far as practicable, be dissociated from the discussion in its early phases. They have a bearing upon it which will be referred to at a later point, but that bearing is only incidental.

By a banking system is meant the relationship which exists between banking units or institutions, and in some cases the mechanism of general control or union between banking units which has been established by law. From this standpoint, banking legislation or banking enactments constitute an important element in the banking system as such.

By a credit system is ordinarily meant that whole mechanism for exchanging goods without money which exists in any community. The banking system is the nucleus of, or central element in, the credit system. There are many credit transactions which take place without the aid of banks, but the banking organization of the country furnishes the underlying means of liquidating credit and of settling outstanding obligations.