Money changing and lending were part of many ancient cultures. The Middle Ages saw an expansion of trade in Europe and with it the need for professional banking services. Some of the first banks of that time were the banking houses in the trading cities of Italy.

Most banks are owned by shareholders. The big banks are owned by private shareholders, while the cantonal banks are wholly or majority-owned by the cantons. But there are also some private banks owned by a few individuals forming a partnership.

Anyone who meets the statutory conditions and obtains authorisation from the Swiss Financial Market Supervisory Authority FINMA may open a bank in Switzerland. The conditions for authorisation, which are laid down in the Banking Law, are strict, as savers and investors need to be protected. For example, a bank must show that it has a sound organisational structure and the required minimum capital. Also, those entrusted with its administration and management must "enjoy a good reputation and thereby assure the proper conduct of business operations."

Both terms refer to the same thing, namely a bank that is responsible for supplying the country with money. The former term highlights the bank's monopoly in the issue of banknotes, while the latter conveys the idea of a central institution that issues money, manages a country's money supply and plays a central role in the payments system.

The banks would face major difficulties. Although they keep sufficient liquid funds to protect savers, this would not be enough if there were a run on the banks. In such a case, the National Bank and the banks would have to take emergency measures. However, in a sound economy with an efficient banking system such a situation is very unlikely to arise.

Theoretically, an economy without banks is possible. A house could be financed with the help of relations and a company could also borrow from other companies. However, banks have some crucial advantages over private borrowing arrangements. They have specialised knowledge and manage large amounts of savings, so they can respond to the needs of a large number of borrowers. For this reason a modern economy without banks is now virtually inconceivable.

Interest is the price paid for the use of borrowed money. It fluctuates according to supply and demand. If the banks receive a lot of money from savers and there is little demand for loans, they reduce their interest rates. But if savings are in short supply and the demand for loans is high, the banks will raise their interest rates.

The rate of interest can differ, depending for example on the type of borrower. Savers lend their money at a lower rate to a borrower with a high credit rating like the State than to someone who engages in high-risk business. And usually the rate paid on a long-term loan will be higher than that on a short-term loan, because lending for a longer period entails more risk.

The process whereby money is destroyed can be explained in the same way as money creation. Suppose a saver decides to withdraw his money from his savings book and keep it in cash. But the bank has lent most of it out in the form of a loan and kept back only a small reserve. It therefore needs to call in the loan. Fortunately the loan happens to expire just at that time and the borrower repays it in the form of banknotes. The bank pays the saver his credit balance and deletes the loan from its books. The money supply has thus been reduced by the amount of the loan. In other words, money has been destroyed.