1. The business of banking consists primarily in the receiving by a corporation or a person engaged therein, called a bank or a banker, of the money of others upon general deposit—that is, subject to repayment upon demand or order—and in the employment of such money by the bank or banker for its or his own benefit in making advances to others by way of loan and of discount of promissory notes and bills of exchange. To the functions of receiving deposits and of loaning and discounting may be added a third, that of issuing bank notes, or the promissory notes of the bank or banker, for use in general circulation as a substitute for money. The business of banking usually includes also the buying and selling of exchange, coin, and bullion, the remission of money, the collection of commercial paper, and the receiving of special deposits. TIFF.BKS.& B.-1 BANK-BANKER 2. Where the business of banking is conducted by a corporation thereto empowered, the corporation is usually tetime, a "bank," and where the business is conducted by an individual or by a firm, the individual of the firm is termed a "banker" or "bankers." The term "bank" is also used to designate the building or office where such business is conducted.1 Banking-Essential Functions Banks, it is often said, are of three kinds : Banks of deposit, which receive money on deposit; banks of discount. which loan money on collateral, or by means of discount of 1 The following are some of the definitions of "bank": "A bank is an institution, usually incorporated, with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit, to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of making temporary loans and discounts, of dealing in notes, foreign and domestic bills of exchange, coin, bullion, credits, and the remission of money; or with both these powers, and with the privileges, in addition to these basic powers, of receiving special deposits, and making collections for the holders of negotiable paper, if the institution sees fit to engage in such business." Morse, Banks & B. (4th Ed.) § 2. "An institution, generally incorporated, authorized to receive deposits of money, to lend money, and to issue promissory notes (usually known by the name of bank notes), or to perform one or more of these functions." Bouvier, L. Dict., quoted in Reed v. People ex rel. Hunt, 125 Ill. 592, 596, 18 N. E. 295, 1 L. R. A. 324; Farmers' & Mechanics' Bank v. Baldwin, 23 Minn. 198, 203, 23 Am. Rep. 683. "An association or corporation whose business it is to receive money on deposit, cash checks or drafts, discount commercial paper, make loans, and issue promissory notes payable to bearer, called 'bank notes.'" Rapalje & L. L. Dict. (quoted in Wells, Fargo & Co. v. Northern Pac. R. Co. [C. C.] 10 Sawy. 441, 23 Fed. 469, 471). See "Banks and Banking,” Dec. Dig. (Key No.) § 2; Cent. Dig. § 2. commercial paper; and banks of circulation, or of issue, which issue bank notes, payable on demand to bearer. It is doubtless true that there have existed so-called banks which exercised only the function of receiving deposits and paying out to the depositor an equivalent amount upon demand. And it is also true that there have existed banks of circulation which did not receive deposits. But an institution that merely exercised the function of discount, neither receiving deposits nor issuing bank notes as a means of obtaining funds with which to make advances, would not be a bank. 2 Oulton v. German Savings & Loan Soc., 17 Wall. 109, 21 L. Ed. 618; Wells, Fargo & Co. v. Northern Pac. Ry. Co. (C. C.) 10 Sawy. 441, 23 Fed. 469, 471; Reed v. People ex rel. Hunt, 125 Ill. 592, 596, 18 N. E. 295, 1 L. R. A. 324; Farmers' & Mechanics' Bank v. Baldwin, 23 Minn. 198, 203, 23 Am. Rep. 683; Bouvier, L. Dict.; Rapalje & L. L. Dict. See "Banks and Banking,” Dec. Dig. (Key No.) § 2; Cent. Dig. § 2. 3 A bank of this obsolete type was the Bank of Amsterdam. See Dunbar, Theory & History of Banking, 18, 82 et seq. In Western Invest. Banking Co. v. Murray, 6 Ariz. 215, 56 Pac. 728, it was held that a corporation which received money, invested it for its depositors by loaning it in their names, and collected rents and interest due on such loans, such rents and interest being subject to check by those for whom they were collected, charging a commission to them, as well as to borrowers, was a bank. Here, the only banking function exercised was that of deposit, which was confined to the funds after collection. Under an act declaring the receiving of money on deposit as a regular business by a person or corporation to be a banking business, whether the deposit is made subject to check or is evidenced by a certificate of deposit, pass book, note, receipt, or other writing, a department store which received deposits up to a certain amount, issued pass books, paid interest on the amounts deposited, and paid the principal, with interest thereon, on demand, in money or goods at the election of the depositor, was engaged in the banking business. McLaren v. State, 141 Wis. 577, 124 N. W. 667, 135 Am. St. Rep. 55. See "Banks and Banking," Dec. Dig. (Key No.) § 2; Cent. Dig. § 2. Bagehot, Lombard Street, § 4. "Banks in the commercial sense," says Clifford, J., in Oulton v. It is of the essence of the business of banking, as it is conducted to-day, that the bank or banker should receive on deposit the money and funds of other persons. The distinctive function of the banker begins as soon as he uses the money of others; so long as he uses his own money, he is only a capitalist. In exercising the function of discount, banks and bankers do, indeed, use their own capital, as well as the funds received from deposits and their bank notes, if they issue bank notes; but an institution that practices only dis German Savings & Loan Soc., 17 Wall. 109, 21 L. Ed. 618, "are of three kinds of deposit, of discount, and of circulation. Originally the banking business consisted in receiving deposits, such as bullion, plate, and the like, for safe-keeping, until the depositor should see fit to withdraw. Later, bankers began to loan by discounting bills and notes, or on mortgage, pawn, or other security; and, at a still later period, to issue notes of their own, intended to circulate as money, instead of gold and silver. Modern banks frequently exercise any two, or even three, of those functions; but it is still true that an institution prohibited from exercising any more than one of them is a bank in the strictest sense." This statement is open to criticism, so far as concerns the dictum that an institution exercising only the function of discount would be a bank. See Morse, Banks & B. (4th Ed.) § 2. But see McLaren v. State, 141 Wis. 577, 124 N. W. 667, 135 Am. St. Rep. 55. Cf. Earle v. American Sugar Refining Co., 74 N. J. Eq. 751, 71 Atl. 391. The internal revenue act of the United States defines a bank or banker as follows: "Every incorporated or other bank, and every person, firm, or company having a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, Lullion, bills of exchange, or promissory notes, or where stocks, bonds, bullion, bills of exchange, or promissory notes are received for discount or for sale, shall be regarded as a bank or banker." Rev. St. U. S. § 3407 (U. S. Comp. St. 1901, p. 2246). This definition is only for the purposes of taxation, and is not to be taken as a definition of a bank or banker for all purposes. See "Banks and Banking," Dec. Dig. (Key No.) § 2; Cent. Dig. $ 2. • Morse, Banks & B. (4th Ed.) § 177. 7 Bagehot, Lombard Street, 21, quoting Ricardo. |