Chapter 5
The bank and its organisation
The banking business: history and current practice
History
Banks have developed from moneychangers into deposit takers, this development took place in
the late Middle Ages. It is from this moment on that bankers held only a fraction of the sums
received in deposit available for retrieval by depositors, and they have lent on longer terms than
deposits could be retrieved. Making the banks’ business model inherently risky.
Current practice
Today, the banking business still consists of obtaining deposits from customers (i.e. raising
funds from the public), and lending money (i.e. giving credit to businesses and individuals).
This is why a bank is, in EU law, sometimes referred to as a ‘credit institution’. This practice can
be profitable for the bank if the (active) interest obtained from the money lent is higher than the
(passive) interest returned to the customer for the money deposited.
The banking business is inherently risky because the money deposited can be retrieved at any
time, but the money borrowed is only due after a period of several years. This represents the
‘transformation function’ of a bank.
Capital Requirements Directive IV
The banking business is a reserved activity. Typical banking activities (mainly: lending and
borrowing) are regulated and prohibited from use by non-authorised entities. At EU level, this
principle is administered by article 8 and 9 of the Capital Requirements Directive IV (CRD IV)
(2013/36/EU).
Categories of banks
I: Commercial banks & investment banks
The first category of banks concerns the operational side of the bank. Commercial banks are
institutions where the main purpose is to deal with retail customers, predominantly offering
bank accounts to the general public and the lending of money (retail and commercial banking).
Investment banks operate with corporations and/or other banks to offer them financial advice in
transactions and activities of a certain level of complexity (mergers and acquisitions, and
admission of shares of a company to the stock market).
II: Multifunctional groups vs. universal banks
An additional categorisation of banks stems from the corporate structure adopted. The universal
bank is a bank that is organised as a monolithic entity which is in charge of everything. It
channels the broad spectrum of activities through units, each being specialised in one of the
specific banking businesses, but belonging to the same corporate entity. In the banking group
6
The bank and its organisation
The banking business: history and current practice
History
Banks have developed from moneychangers into deposit takers, this development took place in
the late Middle Ages. It is from this moment on that bankers held only a fraction of the sums
received in deposit available for retrieval by depositors, and they have lent on longer terms than
deposits could be retrieved. Making the banks’ business model inherently risky.
Current practice
Today, the banking business still consists of obtaining deposits from customers (i.e. raising
funds from the public), and lending money (i.e. giving credit to businesses and individuals).
This is why a bank is, in EU law, sometimes referred to as a ‘credit institution’. This practice can
be profitable for the bank if the (active) interest obtained from the money lent is higher than the
(passive) interest returned to the customer for the money deposited.
The banking business is inherently risky because the money deposited can be retrieved at any
time, but the money borrowed is only due after a period of several years. This represents the
‘transformation function’ of a bank.
Capital Requirements Directive IV
The banking business is a reserved activity. Typical banking activities (mainly: lending and
borrowing) are regulated and prohibited from use by non-authorised entities. At EU level, this
principle is administered by article 8 and 9 of the Capital Requirements Directive IV (CRD IV)
(2013/36/EU).
Categories of banks
I: Commercial banks & investment banks
The first category of banks concerns the operational side of the bank. Commercial banks are
institutions where the main purpose is to deal with retail customers, predominantly offering
bank accounts to the general public and the lending of money (retail and commercial banking).
Investment banks operate with corporations and/or other banks to offer them financial advice in
transactions and activities of a certain level of complexity (mergers and acquisitions, and
admission of shares of a company to the stock market).
II: Multifunctional groups vs. universal banks
An additional categorisation of banks stems from the corporate structure adopted. The universal
bank is a bank that is organised as a monolithic entity which is in charge of everything. It
channels the broad spectrum of activities through units, each being specialised in one of the
specific banking businesses, but belonging to the same corporate entity. In the banking group
6
