History of Banking
Banking has a long and complex history that dates back to ancient times. From rudimentary
systems of exchange to modern financial institutions, the history of banking has been shaped by
numerous cultural, technological, and economic developments.
Ancient Banking
The earliest forms of banking can be traced back to ancient civilizations such as the Babylonians,
who used clay tablets to record transactions as early as 2000 BC. In ancient Greece and Rome,
moneylenders provided loans to merchants and wealthy individuals, and deposits were made in
temples due to beliefs that God would keep the money safe or with private bankers. During this
time in 600 BC, during the reign of the Tang dynasty paper had been created, leading to the
creation of paper currency in ancient China. The first recorded use of coins as a medium of
exchange dates back to 700 BCE in Lydia, an ancient kingdom located in what is now Turkey. The
first known bank, the Bank of Venice, was established in Italy in 1157 AD.
Medieval Banking
During the Middle Ages, banking underwent significant changes and began to take on some of
the characteristics we associate with modern banks. Lombard Street in London became a center
for banking and commerce. Bill of exchange was developed as a way for merchants to transfer
funds from one location to another. Usury laws were put in place to limit the amount of interest
that could be charged on loans, but creative financial instruments such as the bill of exchange
were used to circumvent them. Goldsmiths began to offer banking services and issued receipts
for deposited goods, which evolved into paper money.
During the Middle Ages, banks in Europe primarily provided loans to monarchs and the wealthy
elite. In 1397, the Medici family, a powerful dynasty of Florentine merchants, established a
banking empire that played a crucial role in financing the Italian Renaissance. Banks also began
to issue paper money, which was easier to carry around than heavy metal coins. During 1472,
Banca Monte dei Paschi di Siena was established, the oldest existing retail bank
Early Modern Banking
During the Renaissance, banking expanded throughout Europe, with merchants and traders
establishing banking houses in cities such as Amsterdam, Hamburg, and London. The first
national bank, the Bank of Sweden, was established in 1668 known as Swedish Riksbank. The
Bank of England was established in 1694 to provide loans to the government, and it remains one
of the world's oldest central banks.
Late Modern Banking
The Industrial Revolution led to significant changes in banking, with the development of new
technologies such as the telegraph and the telephone allowing for faster communication and
more efficient financial transactions. In the United States, the first national bank was established
in 1791, and the first modern banknote was issued in 1862.
20th century
The 20th century was marked by significant changes in the banking industry. The Great
Depression of the 1930s led to the creation of new regulatory bodies such as the Federal Deposit
Insurance Corporation (FDIC) in the United States. In the post-World War II era, banks played a
crucial role in financing the reconstruction of Europe and Japan. The emergence of computer
technology in the 1960s and 1970s revolutionized the way banks conducted their business,
leading to the development of ATMs and electronic banking.
21st century
The 21st century has seen significant changes in the banking industry, driven in part by
globalization and the rise of digital technology. Online banking and mobile banking have become
increasingly popular, and new forms of payment such as cryptocurrency have emerged. The
global financial crisis of 2008 led to new regulations aimed at increasing transparency and
stability in the banking industry.
What do you know about the word “bank”?
According to The Oxford Dictionary, the word bank is defined as an establishment for custody of
money that it pays out on a customer’s order. There are various views about the origin of the
word “bank.” One view is that the word is derived from the Italian word “banca” or the French
word “banque” meaning a bench or money exchange table. Benches were used as makeshift
desks or exchange counters during the Renaissance by Florentine bankers, who used to make
their transactions atop desks covered by green tablecloths.
The other point of view is that it originated from the German word “banc” which means a ‘joint
stock firm’. In the explanation of this view, they are saying that today banks are working as a joint
stock firm, which is why the word bank originated from the German word ‘banc’.
Write about the evolution of banking in India, Pakistan, and Bangladesh. (10 marks)