The bank is a financial institution that accepts demand deposits and makes payments where necessary, they give loans to customers or the government. It is an institution that is involved in the business of acceptance of deposits from the public and lending of funds to all eligible borrowers.
Banking is the job or activities of a bank that facilitates the exchange of money between customers and the bank on a contractual understanding and trust.
Origin of the Bank
The bank originated from the activities of goldsmiths in a time where the main form of money was gold and silver coins. Due to the nature of their work goldsmiths had a safe room where they kept people’s valuables e.g. gold, silver, jewelry, etc. People with a larger amount of coins than they felt safe with deposit these coins with the local goldsmith, the only person in the area with a reliable strongroom or safe.
The goldsmith gave receipts in return for the deposit and after some time the depositor started using the receipts as a medium of exchange.
Whenever depositors wanted to reclaim their coins to make other payments they usually would have to visit the goldsmith first and present the receipt given to them. As time went on they found it easier and more convenient to transfer the goldsmith’s receipts as payment instead. Soon receipts had the words ‘bearer’ (the person receiving the money) and the depositor’s name. This method became a popular way of settling bills as coins were too risky and heavy to carry around.
Goldsmiths soon realised that not all the coins were taken out at the same time and they could make money by lending out a proportion of the coins entrusted to them and charging the borrowers interest on them. The goldsmiths also asked the depositors to pay for charges for services rendered.
Subsequently, many people emulated the goldsmith’s practice. They constructed fortified buildings with large secure vaults in which they safely kept people’s valuables and money. They persuaded people to deposit their money and pay interest after which they later lent the money to eligible borrowers at higher interest rates. The transaction between depositors and borrowers constituted their profit and led to the origin of money. The goldsmiths were, therefore, the first bankers in England, and this practice was later adopted by West African countries.