What is a bank?
In the Italian legal system, banking is defined as the joint activity of collecting savings from the public and granting credit (Article 10 of the Consolidated Law on Banking, Legislative Decree No. 385 of 1 September 1993, as subsequently amended). The collection of savings from the public— i.e. the acquisition of funds with a repayment obligation, whether in the form of deposits or other instruments—is a function reserved exclusively for banks.
In line with European regulations, banks are also allowed to carry out a wide range of financial activities, except for those specifically reserved by law for other institutions.
What distinguishes banks from other financial intermediaries is the particular nature of their liabilities - in other words, the funds they owe back to their depositors. Customers can use the money they've deposited in current accounts to make transactions (i.e., payments) using tools such as cheques, bank transfers, or debit cards (for example, through cash machines or point-of-sale terminals).
Because deposits make up a significant portion of the money supply, banks play a key role in transmitting monetary policy from the central bank to the wider economy.
Banks raise funds through customer deposits and by issuing bonds (which are essentially promises to repay borrowed sums on a set date with a specified return). They keep part of the funds in cash to meet customer withdrawals and invest the rest granting loans and buying financial securities.
Some of their funding and investment activities may involve foreign counterparts - these are known as cross-border assets and liabilities. Finally, in modern banking systems, banks also lend to and borrow from each other on the interbank market.
To learn more, explore our in-depth resources.
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