Banks provide most of the credit our economy needs by making loans to enterprises, individuals and governments. Banks also accept discount on promissory notes, witch is another form of bank loan. In some developed countries and regions, the discount of many kinds of notes including commercial bills of exchange, bank cashier's checks and government notes has become one of the important instrument of short-term financing and bank loan making.
The interest that borrowers pay for their loans or for their notes discounted forms the major source of banks' income. Lending money is, therefore, banks' main business. Where does the money loaned come from? It belongs to the banks' depositors.
A bank must always keep enough cash on hand to pay its withdrawals. But it is unlikely that all depositors of a bank would withdraw their money at the same time. Also, while some are making withdrawals, others are making deposits. The money deposited each day is usually more than enough to cover all withdrawals. This means that a bank needs to keep on hand only a small portion of its total deposits. The rest can be used to make loans or accept discount. In this way, banks keep the circulation of money to meet the needs of our economy.