Banks: Fundamental Concepts

Carnell, Macey & Miller: The Law of Banking and Financial Institutions (Wolters Kluwer 2017 Forthcoming)

NYU Law and Economics Research Paper No. 16-37

Fordham Law Legal Studies Research Paper No. 2847297

86 Pages Posted: 5 Oct 2016

See all articles by Richard Scott Carnell

Richard Scott Carnell

Fordham University School of Law

Jonathan R. Macey

Yale Law School; European Corporate Governance Institute (ECGI)

Geoffrey P. Miller

New York University School of Law

Date Written: October 2016

Abstract

This chapter from our forthcoming book on financial institution regulation identifies the fundamental economic form of a commercial banking firm. We argue that a commercial bank is a financial intermediary that operates as a payments specialist. The intermediation and payment functions are not necessarily linked; many firms operate as financial intermediaries without offering payments services, and many firms and institutions offer payments services without being intermediaries. The linkage of the payment and intermediation functions in the commercial bank is due to the fact that a bank performs the payment function by means of accounts customers place on deposit. Given that the bank has funds on deposit to carry out its payments function, it naturally invests those funds in financial claims and thus becomes an intermediary. What is truly fundamental about banks is not the fact that they are financial intermediaries, but rather that they are payments specialists. The chapter discusses this feature of banks and places bank payment services in a broader context of other payment mechanisms including exotic instruments such as local currencies, MMORPG currencies, LETS systems, and crypto-currencies such as Bitcoin.

Suggested Citation

Carnell, Richard Scott and Macey, Jonathan R. and Miller, Geoffrey P., Banks: Fundamental Concepts (October 2016). Carnell, Macey & Miller: The Law of Banking and Financial Institutions (Wolters Kluwer 2017 Forthcoming); NYU Law and Economics Research Paper No. 16-37; Fordham Law Legal Studies Research Paper No. 2847297. Available at SSRN: https://ssrn.com/abstract=2847297

Richard Scott Carnell

Fordham University School of Law ( email )

140 West 62nd Street
New York, NY 10023
United States
212-636-7310 (Phone)
212-636-6899 (Fax)

Jonathan R. Macey

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
+203-432-7913 (Phone)
+203-4871 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Geoffrey P. Miller (Contact Author)

New York University School of Law ( email )

Center for the Study of Central Banks
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6329 (Phone)
212-995-4590 (Fax)

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