Meaning of bank

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Meaning of bank & what is bank ?

Meaning of bank

Whenever you visit the branches of these banks you see that bank employees are either receiving or giving out money (cash, coins, and checks) to their clients. So, in its simplest form, a bank is an institution in which individuals and firms deposit their money when they have surplus and withdraw or take loan when they need it. From the bank’s prospective, accepting the deposit is equivalent to borrowing the money which is used for lending and investment purpose. Deposit is liability to the bank. 

Similarly, giving out the money either reduces the liabilities or creates the financial assets. Bank creates financial assets by lending money. Thus, funcationally, banking is just borrowing and lending activities and a bank is a financial institutions that borrows and lends money. This is just elementary funcational definitions of a bank. These functions of accepting deposit and granting loans are perform by many other financial institutions such as finance companies and co-operatives. But we do not call them banks, though they perform many banking functions. 

On the other hand, banks have been providing services related to insurance (banc assurance) and issue of securities (merchant banking), etc. which were not traditional banking functions. Thus, the funcational definitions required legal sanction for the purpose regulating banks. To resolve this problem, the concerned law and regulations of a country started defining the bank. Such definition is called legal definition. For example : in Nepal, banks and financial institutions act, 2016 (BAFIA) has defined a bank as a corporate body incorporated to carryon financial institutions as specified in section 49(1) of BAFIA. 

These functions includes : accepting the deposits, granting credits, dealing in foreign currency, carrying out off-balance sheet activities, performing general utility and agency functions. Thus, legally a bank is a financial institutions that accept deposit with or without interest, supplies different types of credits, deals in foreign currency, carries out off-site balance sheet activities and general utlity functions and works as an agent of government and its clients. In this session, we use the term, bank as a corporate body incorporated to produce wide range of financial products such as deposits, loans, remittance, payments services, letter of credit, bank guarantee, merchant banking services and so on.        

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