#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.
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