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Definition Of:

banking

Bible DictionaryDictionary of Political Economy
In the broadest sense of the term, "banking" is the business of accepting temporary responsibility for safeguarding other people's money ("deposits") and then lending out these funds (along with the bankers' own funds) in order to earn interest for the bank's own account. Banking firms thus earn their profits primarily by serving as "financial intermediaries" who mobilize the scattered savings of many households and firms (by offering safekeeping services and paying interest on at least some kinds of accounts) and then make these pooled funds available to suitable borrowers (to business firms that want to finance proposed investment projects or perhaps to consumers who want to finance big ticket durable consumers' goods like automobiles or perhaps to governmental entities whose policy-makers have decided to spend more money than they have received in revenue collections). The bank pledges its own capital (and also buys outside deposit insurance) to guarantee that any depositor can get all his/her money back in cash no later than some contractually specified length of time after giving notice of withdrawal. The bank makes this somewhat risky guarantee even though it is quite predictable that some (hopefully small) percentage of the loans the bankers make using depositers' funds will "turn sour" and not be repaid by the borrower. The bank's profits arise mainly from the (positive) spread between its costs of securing and servicing deposits and its revenues from fees and interest on the loans extended. (Of course banks frequently seek to make additional profits selling other financial services to their clients and customers as well, but the business of accepting deposits and making loans is the defining core of the banking business.) Not all firms engaging in "banking" in this broad sense are officially called "banks." Savings and loan associations, credit unions and other miscellaneous thrift institutions provide similar services under other names. The laws of the United States and most other developed industrial countries provide for multiple types of financial intermediary institutions whose official "labels" normally depend upon the selected purposes for which they will loan money (business loans, consumer loans, real estate mortgages, etc.), the maximum time period for which they will contract a loan (2 years? 5 years? 30 years?), and the kinds of supplementary services (checking privileges, foreign exchange, management of trusts and estates, etc.) that they may provide for their customers beyond basic taking of deposits and extension of loans. From the perspective of this course, banks are mainly of interest because of their key role in determining the size of the money stock. Considerably less than half of the US money stock (M1) consists of physical cash or currency (coins and bills). Most of the money stock in the US (or any other present-day advanced industrial economy) is in the form of "mere" ledger entries representing bank depositers' credit balances in their individual or corporate checking accounts. And, amazingly enough to the uninitiated, this means that banks are constantly creating money "out of thin air" simply by making bookkeeping entries that assign new checking account credits to customers as they take out loans from the bank. More...

 

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AAGRA
AAR
ABOLFAZL SHADVAR
ABSOLUTE POVERTY
ACCRUED INTEREST
ACHIEVED STATUS
ACID RAIN
ACUTE DISEASE
ADAPTATION
ADJUSTED GROSS ...AERO
AFFIRMATIVE ACT...
AG
AGE GRADES
AGE STRUCTURE
AGEISM
AGENCIES OF SOC...AGRA
AGRARIAN SOCIET...AGRIBUSINESS
AIDS (Acquired ...
AIR POLLUTION
ALAA
ALIENATION
ANDROGYNY
ANIMISM
ANOMIA
ANOMIE
ANOMIE THEORY
ANTHROPOLOGY
APARTHEID
APEC
APG
APPROPRIATE TEC...ARMS RACE
ARMS TRADE
ARRANGED MARRIA...ASCRIBED STATUS
ASSET PROTECTIO...
ASSETS
ASSIMILATION
AUTHORITARIAN P...
AUTHORITY
AUTOCRATIC RULE
AUTOMATION
Abatement
Abbey
Abbot
Ability-to-Pay ...Ablutophobia
Absolute Advant...
Absolute advant...Abundance
Acarophobia
Accelerator
Acceptance
Acceptance-reje...
Accolade
Accoutrement
Acerophobia
Acheronophobia
Achluophobia
Acid Rain
Acousticophobia
Acquired Endowm...Acquittal
Acre
Acrophobia
Act of Parliame...
Acting Speaker
Active Alumni M...Adaptive Expect...
Additive
Address in Repl...Administrator o...
Admiral
Adoubement
Advance estimate
Adventurous Shi...Adverse Selecti...Aeroacrophobia
Aeronausiphobia
Aerophobia
Affection
Agency problem
Agency problem ...Agency problem ...
Aggregate Deman...Aggregate Expen...Aggregate Suppl...
Aggregate demand
Aggregate supply
Aggression
Agincourt, Batt...Agliophobia
Agoraphobia
Agraphobia
Agrizoophobia
Agyrophobia

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