[Economics]
However, if you take a look at the history of the development of banking, the first evidence of some kind of bank prototype was seen in XII century in Genoa. In Italy at that time there were lots of bankers – money-changers who put their coins on the table. Originally, bankers in the XIII century, mostly known as Lombards, gradually outweighed the Jews who were proficient in money-landing. The Italians brought in business skills, enhanced by their invention of double-entry book-keeping. Such cities, like Milan, Genoa, Siena and Lucca earned much earnings from this new trade. However, Florence took the lion’s share (Gascoigne, 2001).
Creative accountancy enables them to avoid the Christian sin of usury; interest on a loan is presented in the accounts either as a voluntary gift from the borrower or as a reward for the risk taken. The banker has different meanings. For example, one defines it as a shop for money-changers. On the other hand, the word characterizes the owner of capital, which has the ability to determine the strategy and tactics of managing the financial resources individually.
The emergence of banks and bakings is associated with a need for intermediary market activities of exchange and sharing of values, which served the function of money in exchange and trading operations. The need for the establishment of banking amplified simultaneously with the development and expansion of trade in the world. The emergence of money as an absolutely unique commodity converted the primitive barter mechanism into circulation of goods trough purchases and sales.
A brief outlook of the activity of Greek and Roman financiers starting from IV century. In ancient Greece the bankers were originally considered to be either foreigners or freed slaves, who later became citizens. In general, the business of Banking in Greece was more different and practical than in any other society. Private financiers, public agents and temples undertook financial transactions. Bankers performed the exchange of coins, offered loans, changed cash from one currency to another and tested coins for weight and purity taking deposits, conducted non-cash operations and payments, gave mortgages or loans secured by movable property. The approximate rate of loan varied from 10 to 20 percent. (Gascoigne, 2001).
The remarkable peculiarity of conducting of bank operations at that time was a low level of their legal registration. In the court really significant role played reputation of bankers, as well as the confession of witnesses. The state does not interfere with the activity of these financiers, barely regulated the rate of interest and did not use the services of private bankers. At that time the function of state banks was carried out mainly by temples. Temples were reliable places to store some kind of valuables. They were responsible for attracting deposits, giving long-term loans and complying operations with state money. Thieves were frightened of God, and with the respect to the altar, did not rob temples. Contributions, inviolability of which was guaranteed by the respectful attitude to religion, turned famous Greek temples (such as Delphi, Delian, Samos, Ephesus and other) into original banks. For example, in the temple of Artemis at Ephesus were accumulated deposits from all Asia Minor coast and on the temple of Apollo at Delphi there were concentrated free money of all European Greece.
The first bankers realized that wealth accumulated can be given for temporary use or use the money wisely, for instance, start their own business, open on commercial basis artisan enterprises and benefit from entrepreneurship – receive additional cash. At first, they started to offer secured loans. The mortgage in this case was considered to be ships and good, in some situations – houses, building, valuable and even people (slaves). So as you can understand, first trade operations of raising the capital and then placing it in order to earn some cash were launched (Vovchak et al., 2008).
Ancient Rome borrowed banking from Greece. Bankers exchanged and checked coins, received loans, gave credits, implemented non-cash operations as well. However, the state was actively interfering into their activity. Bank operations and cash payments in Ancient Rome were carried out by financiers. The characteristic features of doing banking in ancient Rome were detailed legal regulation of banking operations and high level of organization of the paperwork. Rome, with its genius for administration, adopts and regularizes the banking practices of Greece. Moreover, by the 2nd century AD the total debt can formally be released by paying the certain amount of money into a bank, and public notaries were appointed to register such financial transactions (Gascoigne, 2001).
It seems that Roman bankers were the first who added to the economic science terms such as: Accounts receivable, Accounts payable; used Income and expenditure ledger, General Ledger, providing them as an evidence in the court.
Rapid trade was considered to be the main factor in the revival of banking in the IX century. Bank operations were primarily conducted by commercial houses which were formed by the cities of northern Italy. They did not only serve their national market, but also provided loans to kings and feudal lords of all European countries.
However, with the fall of the Roman Empire trade decreased and commercial banks disappeared for a short period of time. As a result, this made bankers less necessary than before. The banking system started to renew again in the 12th and 13th centuries in the Italian towns of Florence and Genoa (Lambert, 2012).
Predecessors of banks in Italy were medieval money changers – the representatives of monetary capital; they accepted cash deposits from merchants and specialized in the money exchange in different cities and countries. Over time, the money changers used these deposits and their own money to obtain loans and to receive interests which meant that money changers turned in bankers. The Bank of Venice for a long time did not have any competitors at all; but from the beginning of the fifteenth century, analogous financial institutions were discovered at Genoa and Barcelona, towns, at that time the pride of Europe, and second only to Venice in extent of trade (Hildbreth, 2001, p. 6)
In XVI-XVII centuries merchant guilds in some cities (Venice, Genoa, Amsterdam, Hamburg, Nuremberg) created special banks for non-cash payments between its customers. These banks conducted transactions between clients in special currency, expressed in weight of a certain quantity of precious metal. The banks used their free cash for providing a loan to the state, cities or privileged foreign trade companies. Later on, a family from Germany from a town Ausburg became really significant bankers in the 16th century.
In England, the banking system was established in XVI century. The important thing is to mention the establishment the bank of England in 1694. From the very beginning, the capital equaled 1,200,000 sterling in the value of government stock, but not the real money. This bank is the exact prototype of what we call a commercial banks today. The last increase in the capital of the Bank occurred at the renewing of the charter, in 1781. It was then raised to 11,642,400, or about 56 millions of dollars, at which amount it has ever since remained (Hilbreth, 2001, p. 9).
The Bank of England is sometimes called the 'Old Lady of Threadneedle Street'; in fact it moved to Threadneedle Street in 1734. Meanwhile the Bank of Scotland was founded in 1695 (Lambert, 2012).
However, first bankers came from goldsmiths or merchants. The credit relations which were the necessary basis for economic development in the XIV-XV centuries had already been on the highest level. These people accepted deposits and mattered earning in return. As a consequence, this effectively resulted in a comeback of banking in the Middle Ages identically to what occurred in times of Babylon. However, the Polish-Lithuanian state and later the Commonwealth in the modern sense of the term had no banking system at all.
In Poland in the XVI century, along with the economy, developed centralized credit. Lombard operations were mostly performed by Jewish financiers who often had to deal with the Christian population. On Poland lands credit relations were decentralized. However, in rural areas, where the loan office provided to the community needs with money and grain, they evolved very active. In large cities large capital was operated by the general the banks, which were established by the European community. XVII century is a period of concentration of banking capital in Poland and its penetration into the international economy (Vovchak et al., 2008).
While banking was already strongly developed in the British Empire, Adam Smith came along in 1776 with his theory of the invisible hand. The concept of this theory, was supported by his picky views on the self-regulated economy. He claimed moneylenders as well as bankers managed to restrict the government’s interfering in the banking sector and the economy as a whole economy. According to Adam Smith, this free market capitalism and competitive banking found fertile ground in the New World, where the United States of America were getting ready to emerge (Smith, 1776).
In the United States the first bank, similar to the bank of England, as well as English private commercial banks, the first bank was called the Bank of North America. It was founded in Philadelphia in 1781, and projected by Robert Morris, Superintendent of Finance, an officer corresponding to the present Secretary of the Treasury. Furthermore, this event forced merchants from other cities in the United States to construct similar financial institutions. As a result, several more banks were established:
1) The Massachusetts Bank was found at Boston in 1784 (a capital of which equaled $1,600,000);
2) The Bank of New York started doing business in New York with a capital of $950,000.
These three banks were the only ones yet established, when the Federal Constitution went into operation. (Hildbreth, 2001, p. 28).
At the end of the XIX century, a big amount of commercial banks consolidated until in the end of 20th century banking in Britain was dominated by the 'big four', Barclays, Lloyds, Midland and National Westminster (Lambert, 2012).
We can also simultaneously state that the banking industry flourished in northern Europe. However, with the rise of the British Empire, the banking center migrated to London. Until now, London has continued to stay as a primary financial center within Europe (Armstrong).
In the XX century there were two remarkable events:
Commercial banks faced the Great Depression in 1929, when depositors started to withdraw their money from banks, market froze and fell. As a result, banks lost billions of dollars in assets and gone bankrupt;
The establishment of the World Bank and International Monetary Fund in 1944. These organizations are responsible for giving loans to developing countries, promote sustainable economic growth, as well as security of financial stability.
In XXI century we can observe how financial innovations advanced extremely. For example, the popularization of internet banking (or online banking). Literally, we have gone so far, that there is no need to go to your bank and solve your problems directly there. Modern multifunctional remote servicing of individuals allows you to manage bank accounts 24/7 in real-time from anywhere in the world using the Internet. This online banking service gives the customer a high level of convenience and security. In particular, the system allows customers to remotely perform operations on accounts and cards, transfer money to their country, to open and to replenish deposits, repay loans, pay for utilities and Internet, replenish your mobile phone. All in all, you are free to do everything in your home.
Honestly speaking, scientific and technological progress has gone so far, so there is no need to waste your time on going to the bank department in order to save your issues. If you need to receive your cash, automated teller machines are available verbally on each street of your city; if you need to to replenish your mobile phone, add some money to your credit or transfer it to your friend, you are free to use terminals then.
In addition, we can notice a rise of non-banking financial companies. Though they do not have a banking license, they are under the constant surveillance of country’s banking regulations. There are such types of non-banking financial companies: leasing companies, venture capital companies, investment companies, corporate developing companies and others.
Modern banks play a significant role in our society. They:
Transfer money capital from the area of accumulation in the area of usage;
Provide savings of public distribution costs:
Operate the mechanism of distribution and redistribution by spheres and types of activity;
They streamline all processes of circulation of goods and services;
Trough banks, large amount of capital is mobilized for further investments, expansion of production and so on;
Contribute to the further growth of concentration of production and capital.
Nowadays a loan literally gives more opportunities for a recipient. Though a credit allows to purchase goods or services, gives a chance to launch your own business, use this money to meet your needs or simply invest your cash into some investment projects, the rate of inflation goes up, as new amount of credit is emitted by banks and the level of the entire amount of money in the economy increases. Moreover, it is very important to take into consideration that big credits can lead to serious problems, such as running a financial risk of big debts. Nonetheless, the absence of banking and credit discourages human interaction and thus acts an impediment to economic and social growth (Armstrong).
Anyway, the commercial banks have modificated into financial supermarkets offering a wide range of services to businesses and individuals – from currency exchange to lending nation’s industry. In the modern world, the action of giving a credit appeared leverage to be presented as something absolutely new nowadays.
Bibliography
Lambert, T. (2012) A brief history of banks. [Online]. Available from: http://www.localhistories.org/banking.html [Accessed: 2nd May. 2016].
Hildreth, R. (2001) The History of Banks: To Which Is Added, a Demonstration of the Advantages and Necessity of Free Competition In the Business of Banking. [Online]. Available from: http://socserv2.socsci.mcmaster.ca/econ/ugcm/3ll3/hildreth/bank.pdf [Accessed: 2nd May. 2016].
Armstrong, M. Money and Evolution of banking: the origins of money chapter II [Online]. Available from: https://www.armstrongeconomics.com/research/monetary-history-of-the-world/historical-outline-origins-of-money/money-and-the-evolution-of-banking/
Smith, A. The wealth of nations. (1776) [Online]. Available from: http://www.ibiblio.org/ml/libri/s/SmithA_WealthNations_p.pdf [Accessed: 2nd May. 2016].
Vovchak, O., Rushycyn, N. and Andreikiv, T. (2008) Credit and banking. [Online]. Available from: http://pidruchniki.com/15220122/bankivska_sprava/ istoriya_viniknennya_suchasniy_stan_rozvitok_bankivskoyi_sistemi [Accessed: 2nd May. 2016].
Gascoigne, Bamber. “History of Banking” HistoryWorld. (2001) [Online]. Available fromhttp://www.historyworld.net/wrldhis/PlainTextHistories.asp?groupid=2450&HistoryID=ac19>rack=pthc [Accessed: 2nd May. 2016].
