A bank is an institution for the custody, loan, exchange, or issue of money and credit, and for facilitating the transmission of funds by bills of exchange. Banks deal in money and in credit, which is the deferred payment of money. The principles of banking therefore are inextricably involved with the principles of money and of credit.
Money is of two kinds: metallic or commodity money, and paper or fiduciary money. Such metallic money as is not standard money is also fiduciary in character. This and the next chapter contain a discussion of metallic money, which is followed in Chapters III, IV, and V by a discussion of fiduciary money- a form of credit issued by governments and banks and characterized by general acceptability. Of the many forms of credit issued by banks only bank notes enjoy general acceptability. Such notes are fiduciary money in every essential, and in some countries they constitute the bulk of the circulating media. In other countries bank deposits are a more important medium of exchange, in spite of the fact that their acceptability is restricted. Letters of credit and acceptances are also other important forms of non-circulating bank credit.
The exposition of the nature and laws of money and credit contained in the chapters referred to is an especially proper and useful introduction to the discussion of bank operations and functions taken up in Chapter VI. There it is explained how bank deposits and note liabilities arise in a variety of ways, but chiefly through loans and discounts. By means of such loans and discounts the business of the world is effectively carried on.
The last five chapters of this volume deal with the distinguishing features of the modern bank as regards both organization and operation, the features being discussed from the point of view of the need in response to which they have arisen. A glance at the titles of these chapters will show that there is, first, a need of facilities for performing the functions of deposit, note issue and discount, and, second, a need of safeguarding the interests alike of the bank, of its patrons, and of the public.