A bank refers to a financial institution which is licensed by the government. Its main activities are borrowing and lending money. Over time, several other financial responsibilities have been entrusted on the bank. In countries like Germany, banks forever have owned great stakes in industrial houses. In France, majority of banks provide insurance services as well as real estate services to clients.
• Banks play the role of payment agents by conducting current or checking accounts for individuals (customers).
• Banks pay checks which are drawn on the bank by customers.
• They collect checks which are deposited to the client’s current accounts.
• Banks even facilitate customer payments through telegraphic transfer, ATM and Electronic Fund Transfer at Point of Sale (EFTPOS).
• Banks usually borrow money through acceptance of fund deposits on current accounts, term deposits, and also through issuing banknotes and bond.
• Banks carry out the function of lending through making advances on current accounts to customers, investment in debt securities and installment loans.
• Banks issue money in the form of banknotes as well as current accounts which are subject to check/payment at the client’s order.
Law/rights of banking
Banking law has been framed on the basis of a contractual analysis of a bank and a customer’s relationship. Certain rights as well as obligations associated with this relationship are stated below:
• In case of a bank account credit, it is the bank which owes the amount to the client. In case of overdrawn account, it is the client who owes the amount to the bank.
• The bank must be agreeable for paying the customer’s checks till the amount which stands as credit in the customer’s account, plus any overdraft limit.
• The bank cannot pay from the account of the client without his/her mandate.
• The bank must be agreeable for collection of checks which are deposited to the client’s account and also credit the amount to the bank account of the client.
• The bank enjoys the right to combine all the client’s accounts as every account is an aspect of the same relationship.
• The bank holds a lien on checks that are deposited to the client’s account to the point that the client becomes obliged to the bank.
• The bank is not supposed to disclose transaction details relating to the client’s account without the consent of the client, or until public duty, law or bank’s interest demand it.
• The bank should not close a client’s account without giving him or her prior notice.
Requirements for issuing a bank license
The criteria for issuing a bank license generally vary in every jurisdiction. However these are the typical requirements:
• Minimum capital
• Minimum ratio of capital
• Apt or proper requirements for bank controllers, directors, owners, or senior officers.
• The business plan of the bank is adequately prudent as well as plausible.
Banks provide service through a branch, ATM, mail, telephone banking, online banking, mobile banking and video banking. They are absolutely indispensable in any economy.