§ 2. #Functions of banks.# Almost every bank performs various functions useful to its customers, but some of which are not essentially bound up with banking, and may be performed by institutions that are not truly banks. Among these are:
(a) Maintaining a safe deposit vault, where space may be rented by an individual to keep his valuable papers, jewels, etc. The customer does not usually deliver to the bank possession of the valuables, but himself retains the key to the box which the bank has no right to open. In larger cities this work is often done by separate institutions.
(b) Acting as money-changer to buy and sell moneys of different nations. This function is of less importance in America than elsewhere because of the great size of our country and of the small portion of our boundaries touching those of other nations using different monetary units. Moreover, the function is in large part performed for Americans by ticket agencies at the ports of embarkation and by the steamship companies en route.
(c) Selling bonds and other investments to customers. In smaller communities the customers of a bank turn to it as the best source of information for safe investments of personal or trust funds. This opens to it a new possibility of service. Large investments, however, are usually made through the agency of more specialized investment brokers.
(d) Acting as trustee and business manager for passive investors, and especially as executor and administrator of estates or as guardian of a minor heir. This function has been taken up rapidly since about 1890 by the trust company[3] organized under state laws.
§ 3. #The essential banking function.# The one essential function of a bank, however, is selling (lending) its credit to its customers in some form which will conveniently serve the same function as money. A bank is sometimes defined as a business whose income is derived from lending its promises. The bank's credit is sold in the form of its promises, the evidences of which are its receipts, depositors' account books, drafts and checks on other banks, and bank notes. The indispensable condition to the exercise of this function by a bank is public confidence in its ability to fulfil its promise to pay whenever it is due. This confidence is built upon the bank's paid-up capital; its surplus and undivided profits: the further liability of the stockholders to make good any losses up to an amount equal to the capital stock each holds ("stockholder's double liability"); the financial prestige of the bank's officers, directors, and stockholders; the bank's established reputation and "good will" in the community after a period of successful operation; the character of its loans and of the securities which it owns; and, finally, by the reliance placed in the control and inspection by official examiners. The bank may then sell its credit in any one or in all of the following five ways: (1) by receiving time deposits; (2) by receiving demand deposits; (3) by the method of discount and deposit; (4) by selling exchange of funds to distant points; (5) by issuing bank notes.