Definition Of

Deposit Banking

Pure deposit banking has its origin in England. Banks in England were only confined to accepting deposits and lending for short periods to industries and trade.

Receiving deposits and making advances for short period is called deposit banking. The underlying principle of this system is that banks can not lock up their deposits in long-term investment, as the deposits are repayable on demand. Banks were custodians as well as trustees to keep safe the deposits of the public. This principle made them completely free from supplying fixed capital requirement of industries.