Bank

BANK. - By bank, generally, are meant those organizations which, although without directly producing material goods or services suited to the satisfaction of human needs (agriculture and industry in the broad sense), without physically transferring the goods themselves over distance (transport), nor exchanging and distributing them among consumers (commerce), nonetheless contribute to the entire economic activity of society, on the one hand by providing the means of payment indispensable to transactions and on the other by extending that intangible good sui generis which is credit.

1) The two principal functions performed precisely by banks are the monetary function and the credit function. The monetary function consists in placing at the public's disposal instruments of payment that are more convenient, more manageable and less onerously transferable than metallic money; such instruments are represented by banknotes and by checks. Historically banks began by exercising this function: as consideration for the deposit by private individuals of metallic coins of the most varied type and of the most dissimilar content of fine metal, the first public banks took up the practice of issuing certificates of corresponding value and expressed in an established money of account. Subsequently such certificates assumed the typical form of banknotes, the issuance of which ended up being concentrated in one or a few banks (banks of issue). At present a plurality of banks of issue exists only in the United States of America, where however a special body, the Federal Reserve Board, provides for the coordination and control of the activity of all of them.

Deposits of banknotes, or even of metallic money, allow those who have made them to draw checks for the amount corresponding to the deposits themselves. The mass of checks in circulation is customarily defined as bank money.

Banknotes can be issued not only in correspondence with deposits of metallic money, but also as a result of other operations, so that a portion of the notes may no longer have metallic coverage. Similarly the faculty of drawing checks may be granted to depositors for an amount greater than their deposits, as well as to economic subjects who have made no previous deposit. In all these cases the bank fulfills the credit function, that is, it provides credit to subjects who intend to use it for productive or for consumption purposes. Strictly speaking the credit function can be exercised in two ways: on the one hand by granting to whoever requests it the use of the savings that have flowed in and been gathered by banks through deposits, on the other by creating new means of payment in the form of the issuance of banknotes and of the faculty of drawing checks beyond what would be permitted by the metallic coverage and by the volume of deposits. Previously credit was defined as an intangible good sui generis, inasmuch as in the classic tripartition of the factors of production (natural factors, labor, capital) it is to credit that one draws for the procurement of the capital necessary for production, for the purpose of supplementing that obtained insufficiently by means of corporate self-financing.

A third function of banks, correlated with the credit function, is the investment function of capital, which consists in directing toward the most advantageous employments the newly formed savings in search of utilization.

2) Banking activity is carried on by means of active and passive operations. Through the latter the banks procure capital which they then transfer to whoever needs it by means of active operations.

The principal active operations consist of the discount of securities, usually represented by bills of exchange, of advances against the pledge of securities or goods, of overdraft facilities, etc. With the operation of discount, which represents the most widespread and important form of granting credit, the bank agrees to pay, upon delivery of a security, the bill of exchange, a sum equivalent to the figure marked on the security, less a certain amount. This amount, which constitutes the interest accruing until the moment when the borrowed sum will be returned to the bank, is what is customarily called the discount in the strict sense; the raising and lowering of the discount rate, which is regulated by the central bank, by making recourse to credit more or less onerous, serves precisely to restrict or to expand it. When to the owners of securities or of goods there is advanced the price that they will later obtain from the securities or the goods themselves, then the loans made by the bank take the name of advances. To the owners of immovable property loans are granted in the form of mortgage loans. When recourse is not had to any of these operations, credit can be granted by simple overdraft facility, by which the beneficiary is given the right to draw checks on the bank for a determined amount; also for the other operations the technical form of utilization of credit takes place through overdraft facilities.

The principal passive operations consist of the issuance of banknotes and the assumption of deposits, as well as of the so-called rediscount. With the issuance of banknotes the bank obtains capital in the guise of metallic money or of fine metal and cedes in exchange what juridically is a true and proper credit instrument, that is, a binding promise to pay at sight and to the bearer, for the indicated amount, the value previously received. However, not only is such an operation today by now carried out solely by the banks of issue, but with the establishment of forced circulation, which compels the public to accept banknotes without any right to convert them into metallic money or fine metal, the entire operation comes to assume an aspect and characteristics wholly different from the typical ones. Since at present in no country of the world does the convertibility of banknotes exist, nor is a return to such a system foreseeable in the future, and moreover, owing to the exclusivity of issuance limited to one or, at most, to very few banks, we can attach to the issuance of banknotes, as a passive operation, a merely conceptual and historical meaning.

A typical passive operation remains instead that inherent in deposits, by means of which the bank gathers the capital to be used for the granting of credit or for proceeding to investments or, more generally, for carrying out the active operations. The sums deposited by the public, while remaining at the disposal of the bank, will be returned on the basis of pre-established modalities and maturity in their exact amount. To depositors, however, a compensation is paid (interest), which represents the price for the bank's use of the funds paid over to it; interest can be paid insofar as the bank in turn, through the employment of the deposited funds, obtains profits.

Another typical passive operation is that which is customarily called rediscount. The bank concerned cedes bills of exchange that it has already previously discounted to another bank, usually the institution of issue, in order to realize their amount through a new discount. In this way the institution of issue performs, with regard to the bank that has presented the bills of exchange, an active operation of financing.

3) The term b. is extremely generic, being applied both to banks properly so called and to credit institutions. Strictly speaking, banks properly so called would be those organisms that exercise the monetary function alone, while credit institutions would be specialized in fulfilling the credit function. On the basis of this distinction, therefore, the former would include banks of issue and deposit and discount banks, while the latter would comprise joint-stock credit institutions and the so-called mixed banks. In practice this functional distinction is unclear and it is, indeed, quite doubtful that it can be applied. In fact, if it is true that credit institutions perform an exclusively credit function, banks properly so called end up by exercising that same function as well, albeit in different forms and ways. This happens because the bank of issue issues notes in excess of the metal reserves and in relation to the granting of drawing cheques for amounts greater than the funds deposited, on the part of deposit and discount banks.

It follows that the classification of banks and credit institutions must be made on the basis of another criterion, and practically that of the actual activity carried on by each banking organism, with particular regard to the type of operations to which each devotes itself. Of the banks of issue, which have already been discussed, it remains to be said that in the modern economy they are entrusted with the task of regulating the entire monetary and credit mechanism of a country, and for this reason they are also called central banks. Deposit and discount banks, after having proceeded by means of the typical operations of deposit to gather capital, proceed to its distribution, above all by lending it to those who present bills for discount. From the fact that, given the succession of payments in and withdrawals, only a certain percentage of deposits must be kept available for repayment — for example, 20% — derives the possibility of granting credits for sums even much greater than the total of deposits; according to the example, one may discount bills or authorize overdrafts for sums equivalent to five times the mass of deposits. By means of deposit and discount banks, exclusively the granting of short-term credit is practised. If the same banks grant long-term credit, they take the name of mixed banks, since they carry out that active operation, which is typical of joint-stock credit institutions, while for the gathering of funds they resort to deposit, which is the classic passive operation of deposit and discount banks. Specialized credit institutions are those of agricultural credit, which provide the working capital needed by agricultural enterprises, of land credit, for loans for the improvement of rural property, of naval credit, of building credit, etc. In Italy long-term financing today takes place for the most part through special institutions: IRI, IMI, etc.

4) By virtue of its characteristics, its extent, and the irreplaceable functions it is called upon to perform, the banking organization of every modern country is the most complex and most delicate mechanism of the entire economic system. While in every other sector partial, even extensive, hindrances lead to imbalances that can be healed over a more or less long succession of time, every friction, not to speak of possible collapses, in the banking structure always tends to paralyze or, at the very least, to compromise the unfolding of all the remaining national economic life. This is the reason why in every country the central authorities have gradually wrapped the entire edifice of the banking organization in a more or less dense system of controls which, albeit by different means, has the purpose of bridling the supply and distribution of savings and of moralizing banking activity.

Ercole Calcaterra

II. THE BANCA IN THE FACE OF CHRISTIAN MORALITY

Christian morality has nothing to object in general to the various banking activities; indeed it recognizes and appreciates the services they render by distributing credit, by making the money even of the smallest savers fruitful, by giving capital a broader and more regular circulation, by facilitating payment and collection operations, by making possible great undertakings that otherwise could not be attempted.

It demands, however, that in the carrying out of the individual activities the laws of justice be observed; therefore: the interest on loans and the commissions for services rendered must not go beyond the limits of a just price; since the bank is the custodian of other people's money, it must avoid squandering it in unsafe or ruinous undertakings, because the loss would fall upon the saver; it must avoid every fraudulent or malicious maneuver in the trading of securities, in offers to buy or sell, in monopolistic cornering; it must be vigilant against abuses on the part of clients, of officials, of the management itself, which can occur when it is a question of commissions, of travel expenses, of secrets; or through swindles, harmful operations, falsification of balance sheets, overdrawn checks, etc. The exact evaluation of morality in this field, besides being made difficult by the complexity and the tangle of the various activities, is rendered very difficult also by the conflict between morality and utility, by the easy pliability of the will in the face of gain, by the deplored moral deformation of the conscience of so many men of business, and by the marked tendency to accommodate oneself, to justify many actions with the specious pretext that business is business and that one cannot at all, if one wishes to succeed in anything, apply to it the rigid criteria of Catholic morality.

Hence the necessity for the banker of a well-enlightened and rightly cultivated conscience, both in civil and in religious doctrine, so that he may know how to master and master himself in order to correspond to the trust of those who entrust themselves to the bank and to avoid consequences often disastrous for families, which would be thrown into destitution, and for nations themselves (v. BORSA, FALLIMENTO), whose harm or disaster would end up being poured back upon the saver.

Celestino Testore