Banks

A banker is a person who carries on the business of banking. This legal definition, from the Bills of exchange Act, is functional rather than circular, because it ensures that the legal basis for bank transactions such as cheques do not depend on how the bank is organised or regulated. more...

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The business of banking is in many English common law countries not defined by statute but by common law. The common law definition of the business of banking is:

conducting current accounts for customers; paying to the customer's order (e.g. the customer's cheques drawn on the bank), and; collecting the cheques deposited to the customers's account, as the customer's agent and crediting the proceeds to the customer's current account.;

In countries where there is a statutory definition, the definitions vary depending on the purpose of the statute. For example: ' "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act;' (Banking Act (Singapore), Section 2, Interpretation).

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), the cheque has lost its primacy in most banking systems as a payment instrument, leading legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.

However the commercial role of banks is wider than banking, and includes:

issue of banknotes (promissory notes issued by a banker and payable to bearer on demand); processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means; issuing bank drafts and bank cheques; accepting money on term deposit; lending money by way of overdraft, installment loan or otherwise; providing documentary and standby letters of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures; safekeeping of documents and other items in safe deposit boxes; sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a 'financial supermarket';

Economic functions

The economic functions of banking include:

credit intermediation -- banks borrow and lend back to back on their own account as middle men; maturity transformation -- banks borrow on demand debt and short term debt, but provide long term loans; settlement of payments -- banks handle payments between geographically remote parties, and can net off payment flows in opposite directions to reduce the cost of settling payment obligations.;

Read more at Wikipedia.org