LAWIN

Banking

Banking

Banking Definition

Banking may be defined as transactions carried on by any individual or firm engaged in providing financial services to consumers, businesses, or government enterprises. In the broadest sense, a bank is a financial intermediary that performs one or more of the following functions: safeguards and transfers funds, lends or facilitates lending, guarantees creditworthiness, and exchanges money. These services are provided by such institutions as commercial banks, central banks, savings banks, trust companies, finance companies, life insurers, and investment bankers.

A narrower and more common definition of a bank is a financial intermediary that accepts, transfers, and, most important, creates deposits. This includes such depository institutions as central banks, commercial banks, savings and loan associations, and mutual savings banks.

Organization

Banks are most frequently organized in corporate form and are owned either by private individuals, governments, or a combination of private and government interests. Although noncorporate banks—that is, single proprietorships and partnerships—are found in other countries, since 1863 all federally chartered banks in the United States must be corporations. Only a few states permit formation of noncorporate banks. All countries subject their banks, however owned, to government regulation and supervision, normally implemented by central banking authorities.

Early Banking

Many banking functions such as safeguarding funds, lending, guaranteeing loans, and exchanging money can be traced to the early days of recorded history. In medieval times, the Knights Templars, a military and religious order, not only stored valuables and granted loans but also arranged for the transfer of funds from one country to another. The great banking families of the Renaissance, such as the Medicis in Florence (Italy), were involved in lending money and financing international trade. The first modern banks were established in the 17th century, notably the Riksbank in Sweden (1656) and the Bank of England (1694).

Seventeenth-century English goldsmiths provided the model for contemporary banking. Gold stored with these artisans for safekeeping was expected to be returned to the owners on demand. The goldsmiths soon discovered that the amount of gold actually removed by owners was only a fraction of the total stored. Thus, they could temporarily lend out some of this gold to others, obtaining a promissory note for principal and interest. In time, paper certificates redeemable in gold coin were circulated instead of gold. Consequently, the total value of these banknotes in circulation exceeded the value of the gold that was exchangeable for the notes.

Two characteristics of this fractional-reserve banking remain the basis for present-day operations. First, the banking system’s monetary liabilities exceed its reserves. This feature was responsible in part for Western industrialization, and it still remains important for economic expansion. The excessive creation of money, however, may lead to inflation. Second, liabilities of the banks (deposits and borrowed money) are more liquid—that is, more readily convertible to cash—than are the assets (loans and investments) included on the banks’ balance sheets. This characteristic enables consumers, businesses, and governments to finance activities that otherwise would be deferred or cancelled; however, it underlies banking’s recurrent liquidity crises. When too many depositors request payment, the banking system is unable to respond because it lacks sufficient liquidity. The lack of liquidity means that banks must either abandon their promises to pay depositors or pay depositors until the bank runs out of money and fails. The advent of deposit insurance in the United States in 1935 did much to alleviate the fear of deposit losses due to bank failure and has been primarily responsible for the virtual absence of runs on U.S. banks.

Commercial Banking in the United States

Commercial banks are the most significant of the financial intermediaries. Read more about Commercial Banking in the U.S. here.

Thrift Institutions

Savings and loan associations (SLAs) and savings banks are similar but separate financial institutions. Both were patterned after cooperative movements in Scotland and England. See more about Thrift Institutions here.

European Banking

European banks engage in some activities prohibited to banks in the United States. Commercial banks in Europe tend to be more business oriented. Read more about Banking in Europe here.

Banking in the United Kingdom

Since the 17th century Great Britain has been known for its prominence in banking. London still remains a major financial center, and virtually all the world’s leading commercial banks are represented there. Read more about banking in Great Britain here.

Banking in Developing Countries

The type of national economic system that characterizes developing countries plays a crucial role in determining the nature of the banking system. In capitalist countries a system of private enterprise in banking prevails. In a number of socialist countries, banks have been nationalized. Other countries have patterned themselves after the liberal socialism of Europe; in Peru and Kenya, for instance, government-owned and privately owned banks coexist. In many countries, the banking system developed under colonialism, with banks owned by institutions in the parent country. In some, such as Zambia and Cameroon, this heritage continued, although modified, after decolonization. In other nations, such as Nigeria and Saudi Arabia, the rise of nationalism led to mandates for majority ownership by the indigenous population.

Banks in developing countries are similar to their counterparts in developed nations. Commercial banks accept and transfer deposits and are active lenders, especially for short-term purposes. Other financial intermediaries, particularly government-owned development banks, arrange long-term loans. Banks are often used to finance government expenditures. The banking system may also play a major role in financing exports.

In the poorer countries, an extensive but primitive nonmonetary sector usually continues to exist. It is the special task of the banking community to encourage the use of money and instill banking habits among the population.

Role of Central Banking

The foremost monetary institution in a market economy is the central bank. These are usually government-owned institutions, but even in countries where they are owned by the nation’s banks (such as the United States and Italy), the responsibility of the central bank is to the national interest. Read more about central banking here.

International Banking

In 1978 the U.S. Congress passed the International Banking Act, which imposed constraints on the activities of foreign banks in the United States. Read more about international banking here.

Source: “Banking”Microsoft® Encarta® Online Encyclopedia

Main Elements in the United States Law

Banking Defined

The American legal Ecyclopedia (including defining Banking) offers a fundamental understanding of this topic, providing a fresh approach to the trends. The main entry thoroughly describes its application.

Regulatory Compliance

The American legal Ecyclopedia offers a fundamental understanding of this topic, providing a fresh approach to the trends. The main entry thoroughly describes its application.

Defending Enforcement Actions

The American legal Ecyclopedia offers a fundamental understanding of this topic, providing a fresh approach to the trends. The main entry thoroughly describes its application.

Assistance with Transactional Matters

The American legal Ecyclopedia offers a fundamental understanding of this topic, providing a fresh approach to the trends. The main entry thoroughly describes its application.

Selecting a Banking Law Attorney

The American legal Ecyclopedia offers a fundamental understanding of this topic, providing a fresh approach to the trends. The main entry thoroughly describes its application.

Banking

Introduction

Banking

This entry provides an overview of the legal framework of banking , with a description of the most significant features of banking at international level.

Related Work and Conclusions

Resources

See Also

References (Papers)

  • The New Human Equity Transactions, Shu-Yi Oei, Diane M. Ring, Jul 2017
  • The Perfect Storm Is Brewing Once Again: What Scaling Back Dodd-Frank Will Mean For The Credit Default Swap, Daniel Isaacson, Jul 2017
  • Offshore Accounts: Insider’s Summary Of Fatca And Its Potential Future, J. Richard Harvey Jr., Jun 2017
  • The Fictitious Payee After Teva V. Bmo: Has The Pendulum Swung Back Far Enough?, Benjamin Geva, Jun 2017
  • Chapter V: Tax Treatment Of Trusts (Fideicomisos), Alex Cordova, May 2017
  • Expanding The Mortgage Credit Box: Lessons From The Community Advantage Program, Roberto G. Quercia, Sarah Riley, May 2017

Resources

See Also

Further Reading

Resources

Notes

See Also

Finance
Investment Banking
Savings Institutions
Credit Union
Outline of International banking regulations
List of Banking legal online resources
List of Banking Law e-Journals
List of Investment Law e-Journals
Venture Capital

Further Reading

Hart, Jerry, “Criminal infiltration of financial institutions: a penetration test case study”, Journal of Money Laundering Control, Vol. 13, No. 1, 2010, pp. 55-65.

Dolar, Burak and Shughart II, William F, “The wealth effects of the USA Patriot Act: evidence from the banking and thrift industries”, Journal of Money Laundering Control, Vol. 10, No. 3, 2007, pp.300-317.
Rosdol, Alexa, “Are OFCs leading the fight against money laundering?”, Journal of Money Laundering Control, Vol. 10, No. 3, 2007, pp. 337-351.

Johnston, Barry R and Carrington, Ian, “Protecting the financial system from abuse – Challenges to banks in implementing AML/CFT Standards”, Journal of Money Laundering Control, Vol. 9, No. 1, 2006, pp.48-61.

Hetzer, Wolfgang, “Money Laundering and Financial Markets”, European Journal of Crime, Criminal Law and Criminal Justice, Vol. 11, 2003, pp. 264-277.
Mohammed El Qorchi, Samuel Munzele Maimbo and John F. Wilson. Informal Funds Transfer Systems: An Analysis of the Informal Hawala System. Washington, DC: International Monetary Fund.
Robinson, Jeffrey, The Sink: Crime, Terror and Dirty Money in the Offshore World. Toronto: McClelland & Stewart, 2003.

Goldman, Gerald and Scott K. McClain. Reassessing the Risks of the Check Cashing Industry, ABA Bank Compliance September/October 2002, pp. 38-43.
Flight, Howard, “Taxation and Money Laundering: A Personal View”, Journal of Money Laundering Control, Vol. 5, No. 4, pp. 323-324.
Shahid, Nawaz; McKinnon, Roddy and Webb, Robert, “Informal and Formal Money Transfer Networks: Financial Service or Financial Crime?”, Journal of Money Laundering Control, Vol. 5, No. 4, pp. 330-337.
Wolfsberg Group, Global Anti-money Laundering Guidelines for Private Banking – Wolfsberg AML Principles, Wolfsberg Group, May.

Savla, Sandeep, Money Laundering and Financial Intermediaries. The Hague and Boston: Kluwer Law International, 2001.
Thornill, Sue, A Manual of Best Practice for Combating Money Laundering in the Financial Sector. Commonwealth Secretariat, 1st edition, January 15, 2001.

Magliveras, Konstantinos D, Banks, Money Laundering and the European Community in J. Norton (editor), Banks, Fraud and Crime, Second Edition, Lloyd’s of London Press, London, 2000: 173-200.
Musalem, Errico, Luca & Alberto, Offshore Banking: An Analysis of Micro-and Macro-Prudential Issues. IMF, Washington, D.C., 1999.
United Nations, Global Programme against Money Laundering, Financial Havens, Banking Secrecy and Money Laundering, Vienna, Austria. December 1998.
Maynard, P D, “Offshore Banking Secrecy: Myth or Reality?”, Journal of Money Laundering Control, Vol. 1, No. 4, April 1998

Hierarchical Display of Banking

Finance > Financial institutions and credit
Finance > Financial institutions and credit > Financial institution > Bank
Finance > Monetary economics > Money market > Money > Deposit money
Finance > Financial institutions and credit > Financial services
Finance > Monetary economics > Money market > Money > Deposit money > Credit transfer

Banking

Concept of Banking

See the dictionary definition of Banking.

Characteristics of Banking

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Resources

Translation of Banking

Thesaurus of Banking

Finance > Financial institutions and credit > Banking
Finance > Financial institutions and credit > Financial institution > Bank > Banking
Finance > Monetary economics > Money market > Money > Deposit money > Banking
Finance > Financial institutions and credit > Financial services > Banking
Finance > Monetary economics > Money market > Money > Deposit money > Credit transfer > Banking

See also

  • Banking operation
  • Banking services
  • Banking transaction

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