Banking and Finance : Definition, Origin, Types of Banks.

Banking and Finance : Definition, Origin, Types of Banks.

What is a bank?

A bank may be defined as a financial institution set up purposely for safe-keeping of money, valuable goods and documents like wills and others. The existence of banks has been a big boost to business activities in the world. The help to oil the wheel of business activities by making money available which is the essential ingredient of business.

How did banking originate?

The English banking system of which Nigeria is practising originated from Britain through the activities of the goldsmith. Bank and money therefore have common origin and ancestor – Goldsmith.

It was not deliberately designed as a bank, but through the processes of trial and error, bank emerged. As the name indicates, the goldsmith deals with gold which is a very valuable and rare commodity. Because of the costly nature of gold, the goldsmith had a place called his strong-room in which gold, and other valuable commodities and documents were kept for safe custody. With his strong- room, the goldsmith started receiving valuable commodities from people for safe keeping.

Receipts were issued to those who deposited their valuables as an evidence, and they paid the goldsmith for his services. As time went on, people started using the receipts issued by the goldsmith for the exchange of other goods and services. When the goldsmith discovered that some people who deposited valuables with him do not come for them in a short period, he started enticing other people in form of interest to deposit their gold and other valuables with him. He also started lending these forms of money out to other people on short term basis on interest rate.

This exercise continued until it was modernised and named Bank. This is exactly how the English banking system originated. The goldsmiths in

London therefore became the first bankers. This banking system was copied in Nigeria and other West African Countries like Ghana, Gambia and Sierra- Leone when they were British colonies.

Also read:  What is Production?

Types of Banks

  1. Central Bank
  2. Commercial Bank
  3. Merchant Bank
  4. Development Bank
  5. Mortgage Bank

Click here to download “Banking and Finance : Definition, Origin, Types of Banks” as PDF.


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