Chapter 1: Meaning and Concept of Banking
Definition of a Bank:
A bank is legally registered to accept funds and other valuables for safekeeping. It is often known as an acceptance house. A bank is a lawfully chartered outfit, with stakeholders broken into shareholders, bondholders (investors), directors, officers, and other employees, including the superstructure. A bank could be privately or publicly owned.
Meaning of Banking:
This is the process of legally organizing an outfit to create, safe-keep, manage and transfer money from one person to another, from business to business or between surplus and deficit spending economic agents/ units. The bottom line of the banking business is an efficient payment and intermediary system. The payment system deals with how wealth moves about, shifting from one owner to another regarding cash movement. Wealth is transferred when some legal rights or property in a good is handed over to another person. However, the focus of this unit is the payment system that considers the idea of a promise to pay or payments made by one party to another concerning a certain amount of money.
Without any equivocation, the earliest payment method outside barter was straightforward cash payment. Concerning overall transactions in our system, payment by cash still ranks highest in volume, irrespective of the government's cashless/ light policy. However, the aggregate value of money that moves from one end to the other in a given day is insignificant.
However, transferring a large amount of funds could be more attractive due to the risk of theft or loss when sending them to others in far-off locations.
Types of banks
There are different types of banks, some of them are:
- Central bank
- Commercial banks
- Merchant banks
- Mortgage banks
- Provision of loans and advances to customers
- Creation of savings and current accounts for customers
- Accepting deposits
- A government-issued ID (such as a driver’s license, passport, or military ID)
- Your identification number
- Proof of your physical and mailing address
- An initial deposit (if required)
Proof of Identification
Lenders will require a valid government-issued ID to verify your identity and ensure you meet the legal requirements for borrowing. In many cases, you may need to provide a second form of identification. Generally acceptable forms of ID include the following:- Valid driver’s license
- Birth certificate
- Passport
- State-issued ID
- Social Security card
- Certificate of citizenship
Proof of Income
Personal loans can sometimes be more challenging because collateral is optional to secure the loan. Most lenders will need to verify you have a steady source of income that enables you to repay the loan. Proof of income documents could include the following:- Recent pay stubs (past 30 days)
- Copies of tax returns (usually two years’ worth)
- Copies of W-2s or 1099s (usually two years’ worth)
- Recent bank statements (past two to three months)
- Current employer verification letter
Proof of Address
Lenders typically require proof of address to confirm your contact information and establish your residence. Evidence of your address also aids the lender in assessing the stability of your living situation. Proof of address will need to display your full name and address. Generally accepted documents include the following:- Recent utility bill
- Copy of your lease agreement
- Voter registration card
- Mortgage statement
- Bank statement
- Property tax receipt