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The history of banking began with the first prototype
bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...
s, that is, the merchants of the world, who gave grain
loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...
s to farmers and traders who carried goods between cities. This was around 2000 BCE in
Assyria Assyria ( Neo-Assyrian cuneiform: , romanized: ''māt Aššur''; syc, ܐܬܘܪ, ʾāthor) was a major ancient Mesopotamian civilization which existed as a city-state at times controlling regional territories in the indigenous lands of the A ...
,
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
and Sumeria. Later, in
ancient Greece Ancient Greece ( el, Ἑλλάς, Hellás) was a northeastern Mediterranean civilization, existing from the Greek Dark Ages of the 12th–9th centuries BC to the end of classical antiquity ( AD 600), that comprised a loose collection of cu ...
and during the
Roman Empire The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Roman Republic, Republican period of ancient Rome. As a polity, it included large territorial holdings aro ...
, lenders based in temples gave loans, while accepting deposits and performing the change of money. Archaeology from this period in ancient China and
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
also shows evidence of money lending. Many scholars trace the historical roots of the modern
banking A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...
system to medieval and Renaissance
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
, particularly the affluent cities of
Florence Florence ( ; it, Firenze ) is a city in Central Italy and the capital city of the Tuscany region. It is the most populated city in Tuscany, with 383,083 inhabitants in 2016, and over 1,520,000 in its metropolitan area.Bilancio demografico ...
,
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400  ...
and
Genoa Genoa ( ; it, Genova ; lij, Zêna ). is the capital of the Italian region of Liguria and the sixth-largest city in Italy. In 2015, 594,733 people lived within the city's administrative limits. As of the 2011 Italian census, the Province of ...
. The Bardi and Peruzzi Families dominated banking in 14th century Florence, establishing branches in many other parts of
Europe Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a Continent#Subcontinents, subcontinent of Eurasia ...
. Hoggson, N. F. (1926) ''Banking Through the Ages'', New York, Dodd, Mead & Company. The most famous Italian bank was the Medici Bank, established by Giovanni Medici in 1397.Goldthwaite, R. A. ''Banks, Places and Entrepreneurs in Renaissance Florence,'' (1995) The oldest bank still in existence is Banca Monte dei Paschi di Siena, headquartered in
Siena Siena ( , ; lat, Sena Iulia) is a city in Tuscany, Italy. It is the capital of the province of Siena. The city is historically linked to commercial and banking activities, having been a major banking center until the 13th and 14th centur ...
,
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
, which has been operating continuously since 1472. Until the end of 2002, the oldest bank still in operation was the Banco di Napoli headquartered in
Naples Naples (; it, Napoli ; nap, Napule ), from grc, Νεάπολις, Neápolis, lit=new city. is the regional capital of Campania and the third-largest city of Italy, after Rome and Milan, with a population of 909,048 within the city's adm ...
,
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
, which had been operating since 1463. Development of banking spread from northern Italy throughout the
Holy Roman Empire The Holy Roman Empire was a political entity in Western, Central, and Southern Europe that developed during the Early Middle Ages and continued until its dissolution in 1806 during the Napoleonic Wars. From the accession of Otto I in 962 unt ...
, and in the 15th and 16th century to northern Europe. This was followed by a number of important innovations that took place in
Amsterdam Amsterdam ( , , , lit. ''The Dam on the River Amstel'') is the capital and most populous city of the Netherlands, with The Hague being the seat of government. It has a population of 907,976 within the city proper, 1,558,755 in the urban ar ...
during the
Dutch Republic The United Provinces of the Netherlands, also known as the (Seven) United Provinces, officially as the Republic of the Seven United Netherlands ( Dutch: ''Republiek der Zeven Verenigde Nederlanden''), and commonly referred to in historiograph ...
in the 17th century, and in London since the 18th century. During the 20th century, developments in telecommunications and computing caused major changes to banks' operations and let banks dramatically increase in size and geographic spread. The
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of ...
caused many bank failures, including some of the world's largest banks, and provoked much debate about bank regulation.


Ancient authority

The shift from a reliance on hunting and gathering of foods to
agricultural practices Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people to ...
, starting sometime after 12,000 BCE, resulted in increased stability of economic relations. Such changes in socio-economic conditions began approximately 10,000 years ago in the
Fertile Crescent The Fertile Crescent ( ar, الهلال الخصيب) is a crescent-shaped region in the Middle East, spanning modern-day Iraq, Syria, Lebanon, Israel, Palestine and Jordan, together with the northern region of Kuwait, southeastern region of ...
, about 9,500 years ago in northern China, about 5,500 years ago in Mexico, and approximately 4,500 years ago in the eastern parts of the United States.


Monetary

Ancient types of money known as grain-money and food cattle-money were used from around 9000 BCE as two of the earliest commodities used for purposes of bartering.
Anatolia Anatolia, tr, Anadolu Yarımadası), and the Anatolian plateau, also known as Asia Minor, is a large peninsula in Western Asia and the westernmost protrusion of the Asian continent. It constitutes the major part of modern-day Turkey. The re ...
n obsidian as a raw material for Stone Age tools was being distributed from as early as about 12,500 BCE, and organized trading of it was occurring during the 9th millennium BCE (Cauvin; Chataigner 1989).
Sardinia Sardinia ( ; it, Sardegna, label=Italian, Corsican and Tabarchino ; sc, Sardigna , sdc, Sardhigna; french: Sardaigne; sdn, Saldigna; ca, Sardenya, label= Algherese and Catalan) is the second-largest island in the Mediterranean Sea, aft ...
was one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean; trade using obsidian was replaced during the 3rd millennium BCE by trade of
copper Copper is a chemical element with the symbol Cu (from la, cuprum) and atomic number 29. It is a soft, malleable, and ductile metal with very high thermal and electrical conductivity. A freshly exposed surface of pure copper has a pink ...
and
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
.


Record-keeping

Objects used for record keeping, "
bulla Bulla (Latin, 'bubble') may refer to: Science and medicine * Bulla (dermatology), a bulla * Bulla, a focal lung pneumatosis, an air pocket in the lung * Auditory bulla, a hollow bony structure on the skull enclosing the ear * Ethmoid bulla, pa ...
" and ''tokens'', have been recovered from within Near East excavations, dated to a period beginning 8000 BCE and ending 1500 BCE, as records of the counting of agricultural produce. Commencing in the late fourth millennia
mnemonic A mnemonic ( ) device, or memory device, is any learning technique that aids information retention or retrieval (remembering) in the human memory for better understanding. Mnemonics make use of elaborative encoding, retrieval cues, and image ...
symbols were in use by members of temples and palaces to record stocks of produce. Types of records accounting for trade exchanges of payments were first being made about 3200 BCE. The '' Code of Hammurabi'', written on a clay tablet around 1700 BCE, describes the regulation of banking activity within the civilization (Armstrong); although still rudimentary, banking was well enough developed to justify laws governing banking operations.The word "bank" reflects the origins of banking in temples. According to the famous passage from the
New Testament The New Testament grc, Ἡ Καινὴ Διαθήκη, transl. ; la, Novum Testamentum. (NT) is the second division of the Christian biblical canon. It discusses the teachings and person of Jesus, as well as events in first-century Chris ...
, when Christ drove the money changers out of the temple in Jerusalem, he overturned their tables. Matthew 21.12. In Greece, bankers were known as ''trapezitai'', a name derived from the tables where they sat. Similarly, the English word ''bank'' comes from the Italian ''banca'', for bench or counter.
Later during the Achaemenid Empire (after 646 BCE), further evidence is found of banking practices in the Mesopotamia region. (p. 76 – "record-keeping & bulla"


Structural

By the 5th millennium BCE, the settlements of
Sumer Sumer () is the earliest known civilization in the historical region of southern Mesopotamia (south-central Iraq), emerging during the Chalcolithic and early Bronze Ages between the sixth and fifth millennium BC. It is one of the cradles of ...
, such as Eridu, were formed around a central temple. In the fifth millennium, people began to build and live in the civilization of cities, providing a structure for the construction of institutions and establishments. Tell Brak and
Uruk Uruk, also known as Warka or Warkah, was an ancient city of Sumer (and later of Babylonia) situated east of the present bed of the Euphrates River on the dried-up ancient channel of the Euphrates east of modern Samawah, Muthanna Governorate, Al ...
were two early urban settlements.


Earliest forms of banking


Asia


Mesopotamia and Persia

Banking as an archaic activity (or quasi-banking) is thought to have begun as early as the latter part of the 4th millennium BCE, to the 3rd millennia BCE. Prior to the reign of Sargon I of Akkad (2335–2280 BCE) the occurrence of trade was limited to the internal boundaries of each city-state of Babylon and the temple located at the centre of economic activity therein; trade at the time for citizens external to the city was forbidden. In Babylonia of 2000 BCE, people depositing gold were required to pay amounts as much as one sixtieth of the total deposited. Both the palaces and temple are known to have provided lending and issuing from the wealth they held—the palaces to a lesser extent. Such loans typically involved issuing seed-grain, with re-payment from the harvest. These basic social agreements were documented in clay tablets, with an agreement on interest accrual. The habit of depositing and storing of wealth in temples continued at least until 209 BCE, as evidenced by
Antioch Antioch on the Orontes (; grc-gre, Ἀντιόχεια ἡ ἐπὶ Ὀρόντου, ''Antiókheia hē epì Oróntou'', Learned ; also Syrian Antioch) grc-koi, Ἀντιόχεια ἡ ἐπὶ Ὀρόντου; or Ἀντιόχεια ἡ ἐπ� ...
having ransacked or pillaged the temple of Aine in Ecbatana ( Media) of gold and silver. More information comes from the code commissioned by Hammurabi, king of Babylon –1750 BCE. Law 100 stipulated that repayment of a
loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...
by a debtor to a creditor was to be on a schedule with a maturity date specified in written contractual terms. Law 122 stipulated that a depositor of
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
,
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
, or other
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
must present all articles and a signed
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
of bailment to a notary before depositing the articles with a banker, and Law 123 stipulated that a banker was discharged of any liability from a contract of bailment if the notary denied the existence of the contract. Law 124 stipulated that a depositor with a notarized contract of bailment was entitled to redeem the entirety of their deposit, and Law 125 stipulated that a banker was liable for replacement of deposits stolen while in their possession. Cuneiform records of the
house of Egibi The House of Egibi was a family from within ancient Babylonia who were, amongst other things, involved in mercantile activities. The family’s financial activities are known to archaeologists via an archive of about 1,700 clay tablets spanning fiv ...
of Babylonia describe the family's financial activities as having occurred sometime after 1000 BCE and ending sometime during the reign of Darius I. These records suggest a "lending house" (Silver 2002), a family engaging in "professional banking..." (Dandamaev ''et al.'' 2004), and economic activities similar to modern deposit banking. Another interpretation is that the family's activities are better described as entrepreneurship rather than banking (Wunsch 2007). The
Murashu family The house of Murashu were a family discovered in archaeological findings dating to the late 19th century. The family were alive during the fifth century BC in Nippur, participating in early economic activities. Family name Both Murašû and Murashu ...
apparently took part in providing credit(Moshenskyi 2008).


Asia Minor

From the fourth millennia previously agricultural settlements began administrative activities. The temple of Artemis at Ephesus was the largest depository of Asia. A pot-hoard dated to 600 BCE was found in excavations by The British Museum during 1904. During the time of the cessation of the first Mithridatic war, the entire debt being held at the time was annulled by the council. Mark Anthony is recorded to have stolen from the deposits on occasion. The temple served as a depository for Aristotle, Caesar, Dio Chrysostomus, Plautus, Plutarch, Strabo and Xenophon. The temple to Apollo in Didyma was constructed sometime in the 6th century. A large sum of gold was deposited within the treasury at the time by king Croesus.


India

In ancient India there are evidences of loans from the Vedic period (beginning 1750 BCE). Later during the Maurya dynasty (321 to 185 BCE), an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another.


China

''Main :
History of banking in China History (derived ) is the systematic study and the documentation of the human activity. The time period of event before the invention of writing systems is considered prehistory. "History" is an umbrella term comprising past events as well ...
'' In ancient China, starting in the Qin Dynasty (221 to 206 BCE), Chinese currency developed with the introduction of standardized coins that allowed easier trade across China, and led to development of letters of credit. These letters were issued by merchants who acted in ways that today we would understand as banks.


Ancient Egypt

Some scholars suggest that the Egyptian grain-banking system became so well-developed that it was comparable to major modern banks, both in terms of its number of branches and employees, and in terms of the total volume of transactions. During the rule of the Greek Ptolemies, the granaries were transformed into a network of banks centered in Alexandria, where the main accounts from all of the Egyptian regional grain-banks were recorded. This became the site of one of the earliest known government central banks, and may have reached its peak with the assistance of Greek bankers. According to Muir (2009) there were two types of banks operating within Egypt: royal and private. Documents made to show the banking of taxes were known as peptoken-records.


Greece

''Trapezitica'' is the first source documenting banking ''( de Soto'' – p. 41). The speeches of
Demosthenes Demosthenes (; el, Δημοσθένης, translit=Dēmosthénēs; ; 384 – 12 October 322 BC) was a Greek statesman and orator in ancient Athens. His orations constitute a significant expression of contemporary Athenian intellectual pr ...
contain numerous references to the issuing of credit (Millett p. 5). Xenophon is credited to have made the first suggestion of the creation of an organisation known in the modern definition as a joint-stock bank in ''On Revenues'' written ''circa'' 353 BCE The city-states of Greece after the Persian Wars produced a government and culture sufficiently organized for the birth of a private citizenship and therefore an embryonic capitalist society, allowing for the separation of wealth from exclusive state ownership to the possibility of ownership by the individual. According to one source (Dandamaev ''et al.''), trapezites were the first to trade using money, during the 5th century BCE, as opposed to earlier trade which occurred using forms of pre-money.


Specific focus of funds

The earliest forms of storage utilized were the rudimentary money-boxes (ΘΗΣΑΥΡΌΣ) which were made similar in form to the construction of a bee-hive, and were found for example in the Mycenae tombs of 1550–1500 BCE. Private and civic entities within ancient Grecian society, especially Greek temples, performed financial transactions. (Gilbart p. 3) The temples were the places where treasure was deposited for safe-keeping. The three temples thought the most important were the temple to Artemis in Ephesus, and temple of Hera within
Samos Samos (, also ; el, Σάμος ) is a Greek island in the eastern Aegean Sea, south of Chios, north of Patmos and the Dodecanese, and off the coast of western Turkey, from which it is separated by the -wide Mycale Strait. It is also a sepa ...
, and within Delphi, the temple to Apollo. These consisted of deposits, currency exchange, validation of coinage, and loans.(and prior date) The first treasury to the
Apollo Apollo, grc, Ἀπόλλωνος, Apóllōnos, label=genitive , ; , grc-dor, Ἀπέλλων, Apéllōn, ; grc, Ἀπείλων, Apeílōn, label=Arcadocypriot Greek, ; grc-aeo, Ἄπλουν, Áploun, la, Apollō, la, Apollinis, label= ...
nian temple was built before the end of the 7th century BCE. A treasury of the temple was constructed by the city of
Siphnos Sifnos ( el, Σίφνος) is an island municipality in the Cyclades island group in Greece. The main town, near the center, known as Apollonia (pop. 869), is home of the island's folklore museum and library. The town's name is thought to come ...
during the 6th century. Before the destruction by Persians during the 480 invasion, the Athenian Acropolis temple dedicated to Athena stored money; Pericles rebuilt a depository afterward contained within the Parthenon. During the reign of the Ptolemies, state depositories replaced temples as the location of security-deposits. Records exist to show this having occurred by the end of the reign of Ptolemy I (305–284). As the need for new buildings to house operations increased, construction of these places within the cities began around the courtyards of the agora (markets).


Geographical focus of banking activities

Athens received the Delian league's treasury during 454. During the late 3rd and 2nd century BCE, the Aegean island of Delos became a prominent banking center. During the 2nd century, there were for certain three banks and one temple depository within the city. Thirty-five
Hellenistic In Classical antiquity, the Hellenistic period covers the time in Mediterranean history after Classical Greece, between the death of Alexander the Great in 323 BC and the emergence of the Roman Empire, as signified by the Battle of Actium in ...
cities had private banks during the 2nd century (Roberts – p. 130). Of the settlements of the Greco-Roman world of the 1st century CE, three were of pronounced wealth and centres of banking:
Athens Athens ( ; el, Αθήνα, Athína ; grc, Ἀθῆναι, Athênai (pl.) ) is both the capital and largest city of Greece. With a population close to four million, it is also the seventh largest city in the European Union. Athens dominates a ...
,
Corinth Corinth ( ; el, Κόρινθος, Kórinthos, ) is the successor to an ancient city, and is a former municipality in Corinthia, Peloponnese, which is located in south-central Greece. Since the 2011 local government reform, it has been part ...
and Patras.


Loans

Many loans are recorded in writings from the classical age, although a very small proportion were provided by banks. Provision of these were likely an occurrence of Athens, with loans known to have been provided at some time at an annual interest of 12%. Within the boundaries of Athens, bankers' loans are recorded as having been issued on eleven occasions altogether (Bogaert 1968). Banks sometimes made loans available confidentially, which is, they provided funds without being publicly and openly known to have done so In addition, they kept depositors' names confidential as well. This intermediation ''per se'' was known as dia tes trapazēs. A loan was made by a Temple of Athens to the state during 433–427 BCE.


Rome

Roman banking activities were a crucial presence within temples. For instance the minting of coins occurred within temples, most importantly the Juno Moneta temple, though during the time of the Empire, public deposits gradually ceased to be held in temples, and instead were held in private depositories. Still, the
Roman Empire The Roman Empire ( la, Imperium Romanum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Roman Republic, Republican period of ancient Rome. As a polity, it included large territorial holdings aro ...
inherited the mercantile practices from Greece (Parker). During 352 BCE a rudimentary public bank (known as ''dēmosía trápeza'' ) was formed, with the passing of a consular directive to form a commission of ''mensarii'' to deal with debt in the impoverished lower classes. Another source shows banking practices during 325 BCE when, on account of being in debt, the
Plebeians In ancient Rome, the plebeians (also called plebs) were the general body of free Roman citizens who were not patricians, as determined by the census, or in other words " commoners". Both classes were hereditary. Etymology The precise origins ...
were required to borrow money, so newly appointed ''quinqueviri mensarii'' were commissioned to provide services to those who had security to provide, in exchange for money from the public treasury. Another source (J. Andreau) has the shops of banking of Ancient Rome firstly opening in the public forums during the period 318 to 310 BCE. In early
Ancient Rome In modern historiography, ancient Rome refers to Roman people, Roman civilisation from the founding of the city of Rome in the 8th century BC to the collapse of the Western Roman Empire in the 5th century AD. It encompasses the Roman Kingdom ...
deposit bankers were known as ''argentarii'' and at a later time (from the 2nd century CE onward) as ''nummularii'' (Andreau 1999 p. 2) or ''mensarii''. The banking-houses were known as ''Taberae Argentarioe'' and ''Mensoe Numularioe''. They would set up their stalls in the middle of enclosed courtyards called ''macella'' on a long bench called a ''bancu'', from which the words ''banco'' and ''bank'' are derived. As a money changer, the merchant at the ''bancu'' did not so much invest money as merely convert the foreign currency into the only legal tender in Rome—that of the Imperial Mint. Operations of banking within Roman society were known as ''officium argentarii''. Statutes (125/126 CE) of the Empire described "''letter from'' '' Caesar to Quietus''" show rental monies to be collected from persons using land belonging to a temple and given to the temple treasurer, as decreed by Mettius Modestus, governor of Lycia and Pamphylia. A law, ''receptum argentarii'', obliged a bank to pay its clients debts under guarantee.
Cassius Dio Lucius Cassius Dio (), also known as Dio Cassius ( ), was a Roman historian and senator of maternal Greek origin. He published 80 volumes of the history on ancient Rome, beginning with the arrival of Aeneas in Italy. The volumes documented the ...
advocated the establishment of a state bank, funded by the sale of all the properties owned at the time by the state. In the 4th century monopolies existed in Byzantium and in the city of
Olbia Olbia (, ; sc, Terranoa; sdn, Tarranoa) is a city and commune of 60,346 inhabitants (May 2018) in the Italian insular province of Sassari in northeastern Sardinia, Italy, in the historical region of Gallura. Called ''Olbia'' in the Roman age ...
in Sardinia. The Roman empire at some time formalized the administrative aspect of banking and instituted greater regulation of financial institutions and financial practices. Charging
interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distin ...
on loans and paying interest on deposits became more highly developed and competitive. The development of Roman banks was limited, however, by the Roman preference for cash transactions. During the reign of the Roman emperor Gallienus (260–268 CE), there was a temporary breakdown of the Roman banking system after the banks rejected the flakes of copper produced by his mints. With the ascent of Christianity, banking became subject to additional restrictions, as the charging of interest was seen as immoral. After the fall of Rome, banking temporarily ended in Europe and was not revived until the time of the crusades.


Religious restrictions on interest

Most early religious systems in the ancient Near East, and the secular codes arising from them, did not forbid
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
. These societies regarded inanimate matter as alive, like plants, animals and people, and capable of reproducing itself. Hence if you lent 'food money', or monetary tokens of any kind, it was legitimate to charge interest. Food money in the shape of olives, dates, seeds or animals was lent out as early as BCE, if not earlier. Among the
Mesopotamia Mesopotamia ''Mesopotamíā''; ar, بِلَاد ٱلرَّافِدَيْن or ; syc, ܐܪܡ ܢܗܪ̈ܝܢ, or , ) is a historical region of Western Asia situated within the Tigris–Euphrates river system, in the northern part of the ...
ns,
Hittites The Hittites () were an Anatolian people who played an important role in establishing first a kingdom in Kussara (before 1750 BC), then the Kanesh or Nesha kingdom (c. 1750–1650 BC), and next an empire centered on Hattusa in north-cent ...
,
Phoenicians Phoenicia () was an ancient thalassocratic civilization originating in the Levant region of the eastern Mediterranean, primarily located in modern Lebanon. The territory of the Phoenician city-states extended and shrank throughout their his ...
and Egyptians, interest was legal and often fixed by the state.


Judaism

The
Torah The Torah (; hbo, ''Tōrā'', "Instruction", "Teaching" or "Law") is the compilation of the first five books of the Hebrew Bible, namely the books of Genesis, Exodus, Leviticus, Numbers and Deuteronomy. In that sense, Torah means the ...
and later sections of the
Hebrew Bible The Hebrew Bible or Tanakh (;"Tanach"
'' In general, it was seen as advantageous to avoid debt at all, to avoid being bound to someone else. Debt was to be avoided and not used to finance consumption, except when in need. However, laws against usury were among many the prophets condemned the people for breaking. The interpretation that interest could be charged to non-Israelites would be used in the 14th century for Jews living within Christian societies in Europe to justify lending money for profit. This conveniently side stepped the rules against usury in both Judaism and Christianity, as Christians were not involved in the lending but were still free to take the loans.


Christianity

Originally, the charging of interest, known as
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
, was banned by Christian churches. This included charging a fee for the use of money, such as at a bureau de change. However over time the charging of interest became acceptable due to the changing nature of money, and the term 'usury' came to be used for charging interest above the rate allowed by law. The notion of "
Christian finance Christian finance is a kind of ethical finance following Christian ethics. Although not widely used, the notion of "Christian finance" or "Catholic finance" refers to banking and financial activities which came into existence several centuries a ...
" refers to banking and financial activities that came into existence several centuries ago. Despite the prohibition of
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
and the Church distrust against exchange activities (as opposed to production activities), a number of operations of a banking or financial nature are in evidence in the activities of the Knights Templar (12th century),
Mounts of Piety Mount is often used as part of the name of specific mountains, e.g. Mount Everest. Mount or Mounts may also refer to: Places * Mount, Cornwall, a village in Warleggan parish, England * Mount, Perranzabuloe, a hamlet in Perranzabuloe parish, C ...
(appeared in 1462) and the
Apostolic Chamber The Apostolic Camera ( la, Camera Apostolica), formerly known as the was an office in the Roman Curia. It was the central board of finance in the papal administrative system and at one time was of great importance in the government of the Sta ...
attached directly to the Vatican (money loans, guarantees, issuance of securities, investments, etc.) The rise of
Protestantism Protestantism is a Christian denomination, branch of Christianity that follows the theological tenets of the Reformation, Protestant Reformation, a movement that began seeking to reform the Catholic Church from within in the 16th century agai ...
in the 16th century weakened Rome's influence, and its dictates against usury became irrelevant in some areas, freeing up the development of banking in Northern Europe. In the late 18th century, Protestant merchant families began to move into banking to an increasing degree, especially in trading countries such as the United Kingdom (
Barings Barings LLC, known as Barings, is an international investment management firm owned by Massachusetts Mutual Life Insurance Company (MassMutual). It operates as a subsidiary of MassMutual Financial Group, a diversified financial services organisa ...
), Germany ( Schroders, Berenbergs) and the Netherlands ( Hope & Co., Gülcher & Mulder). At the same time, new types of financial activities broadened the scope of banking far beyond its origins. One school of thought attributes to
Calvinism Calvinism (also called the Reformed Tradition, Reformed Protestantism, Reformed Christianity, or simply Reformed) is a major branch of Protestantism that follows the theological tradition and forms of Christian practice set down by John C ...
the setting of the stage for the later development of capitalism in northern Europe. In this view, elements of Calvinism represented a revolt against the medieval condemnation of usury and, implicitly, of profit in general. Such a connection was advanced in influential works by R. H. Tawney (1880–1962) and by Max Weber (1864–1920). According to Weber, the Protestant work ethic was a force behind an unplanned and uncoordinated mass action that influenced the development of
capitalism Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
. Rodney Stark propounds the theory that Christian rationality is the primary driver behind the success of capitalism and the Rise of the West.


Islam

The
Quran The Quran (, ; Standard Arabic: , Quranic Arabic: , , 'the recitation'), also romanized Qur'an or Koran, is the central religious text of Islam, believed by Muslims to be a revelation from God. It is organized in 114 chapters (pl.: , ...
strictly prohibits lending money on Interest. "O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful" (3:130) "and Allah has permitted trade and has forbidden interest" (2:275). The Quran states that taking interest and making money through unethical means was prohibited for Muslims and in other communities in earlier times as well: "Because of the wrongdoing of the Jews We forbade them good things which were (before) made lawful unto them, and because of their much hindering from Allah's way, And of their taking usury when they were forbidden it, and of their devouring people's wealth by false pretenses, We have prepared for those of them who disbelieve a painful doom." (Al Quran – 4:160–161) '' Riba'' is forbidden in Islamic economic jurisprudence (
fiqh ''Fiqh'' (; ar, فقه ) is Islamic jurisprudence. Muhammad-> Companions-> Followers-> Fiqh. The commands and prohibitions chosen by God were revealed through the agency of the Prophet in both the Quran and the Sunnah (words, deeds, and e ...
). Islamic jurists discuss two types of riba: an increase in capital with no services provided, which the
Qur'an The Quran (, ; Standard Arabic: , Quranic Arabic: , , 'the recitation'), also romanized Qur'an or Koran, is the central religious text of Islam, believed by Muslims to be a revelation from God. It is organized in 114 chapters (pl.: , si ...
prohibits, and commodity exchanges in unequal quantities, which the Sunnah prohibits. Trade in promissory notes (e.g. fiat money and derivatives) is forbidden. Despite the prohibition of charging interest, during the 20th century a number of developments took place that would lead to an Islamic banking model where no interest is charged but banks would still operate for profit. This was done through charging for loans in alternative ways such as through fees and using different methods of risk sharing and ownership models such as leasing.


Medieval Europe

The roots of modern banking are traceable to medieval and early Renaissance Italy, to rich northern cities such as
Florence Florence ( ; it, Firenze ) is a city in Central Italy and the capital city of the Tuscany region. It is the most populated city in Tuscany, with 383,083 inhabitants in 2016, and over 1,520,000 in its metropolitan area.Bilancio demografico ...
,
Venice Venice ( ; it, Venezia ; vec, Venesia or ) is a city in northeastern Italy and the capital of the Veneto Regions of Italy, region. It is built on a group of 118 small islands that are separated by canals and linked by over 400  ...
, and
Genoa Genoa ( ; it, Genova ; lij, Zêna ). is the capital of the Italian region of Liguria and the sixth-largest city in Italy. In 2015, 594,733 people lived within the city's administrative limits. As of the 2011 Italian census, the Province of ...
.


Emergence of merchant banks

The original banks were " merchant banks" that Italian grain merchants invented in the
Middle Ages In the history of Europe, the Middle Ages or medieval period lasted approximately from the late 5th to the late 15th centuries, similar to the post-classical period of global history. It began with the fall of the Western Roman Empire ...
. As Lombardy merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient practices from the Middle and Far East silk routes. Originally intended to finance long trading journeys, they applied these methods to finance grain production and trading. Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy, alongside local traders, and set up their benches to trade in crops. They had one great advantage over the locals: Christians were strictly forbidden
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
, defined as lending at interest, as it was considered to be a sin. (Islam similarly condemns usury). The Jewish newcomers, on the other hand, could make high-risk loans to farmers against crops in the field, as they were not subject to the Church's dictates. In this way, they could secure grain-sale rights against the eventual harvest. They then began to advance payment against the future delivery of grain shipped to distant ports. In both cases they made a profit from the present discount against the future price. This two-handed trade was time-consuming and soon there arose a class of merchants who were trading grain
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
instead of grain. The Jewish trader performed both financing (credit) and underwriting (
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
) functions. Financing took the form of a crop loan at the beginning of the growing season, which allowed a farmer to cultivate his annual crop, with the associated expenses of seeding, growing, weeding, and harvesting. Underwriting in the form of crop, or commodity, insurance guaranteed the delivery of the crop to its buyer, typically a merchant wholesaler. In addition, traders performed the merchant function by making arrangements to supply the buyer with the crop through alternative sources—grain stores or alternate markets, for instance—in the event of crop failure. He could also keep the farmer (or other commodity producer) in business during a drought or other crop failure, through the issuance of crop (or commodity) insurance against the hazard of failure of his crop. Merchant banking progressed from financing trade on one's own behalf to settling trades for others, and then to holding deposits for settlement of "billette" or notes written by the people who were still brokering the actual grain. And so the merchant's "benches" (''bank'' is derived from the Italian for bench, ''banca'', as in a counter) in the great grain markets became centres for holding money against a
bill Bill(s) may refer to: Common meanings * Banknote, paper cash (especially in the United States) * Bill (law), a proposed law put before a legislature * Invoice, commercial document issued by a seller to a buyer * Bill, a bird or animal's beak Pla ...
(''billette'', a note, a letter of formal exchange, later a bill of exchange and later still a cheque). These deposited funds were intended to be held for the settlement of grain trades, but often were used for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian ''banca rotta'', or broken bench, which is what happened when someone lost his traders' deposits. The expression of "being broke" has a similar etymology.


Crusades

In the 12th century, the need to transfer large sums of money to finance the
Crusades The Crusades were a series of religious wars initiated, supported, and sometimes directed by the Latin Church in the medieval period. The best known of these Crusades are those to the Holy Land in the period between 1095 and 1291 that were ...
stimulated the re-emergence of banking in western Europe. In 1162,
Henry II of England Henry II (5 March 1133 – 6 July 1189), also known as Henry Curtmantle (french: link=no, Court-manteau), Henry FitzEmpress, or Henry Plantagenet, was King of England from 1154 until his death in 1189, and as such, was the first Angevin kin ...
levied a tax to support the crusades—the first of a series of taxes levied by Henry over the years with the same objective. The
Templars , colors = White mantle with a red cross , colors_label = Attire , march = , mascot = Two knights riding a single horse , equipment ...
and Hospitallers acted as Henry's bankers in the Holy Land. The Templars' far-flung, large land holdings across Europe also emerged in the 1100–1300 time frame as the beginning of Europe-wide banking. Their practice was to take in local currency for which a demand note would be given that would be good at any of their castles across Europe, allowing movement of money without the usual risk of robbery while traveling.


Discounting of interest

A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed; in short, selling an "interest" to them in a specific trade, thus overcoming the
usury Usury () is the practice of making unethical or immoral monetary loans that unfairly enrich the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is c ...
objection. Once again this merely developed what was an ancient method of financing long-distance transport of goods. Medieval trade fairs, such as the one in
Hamburg Hamburg (, ; nds, label=Hamburg German, Low Saxon, Hamborg ), officially the Free and Hanseatic City of Hamburg (german: Freie und Hansestadt Hamburg; nds, label=Low Saxon, Friee un Hansestadt Hamborg),. is the List of cities in Germany by popul ...
, contributed to the growth of banking in a curious way: moneychangers issued documents redeemable at other fairs, in exchange for hard currency. These documents could be cashed at another fair in a different country or at a future fair in the same location. If redeemable at a future date, they would often be discounted by an amount comparable to a rate of interest. Eventually, these documents evolved into bills of exchange, which could be redeemed at any office of the issuing banker. These bills made it possible to transfer large sums of money without the complications of hauling large chests of gold and hiring armed guards to protect the gold from thieves.


Italian bankers

The
Republic of Venice The Republic of Venice ( vec, Repùblega de Venèsia) or Venetian Republic ( vec, Repùblega Vèneta, links=no), traditionally known as La Serenissima ( en, Most Serene Republic of Venice, italics=yes; vec, Serenìsima Repùblega de Venèsia ...
, sometimes mistakenly credited with establishing a
Bank of Venice The Republic of Venice organized its first formal public bank in 1587, the ''Banco della Piazza di Rialto''. This followed earlier proposals and the steady collapse during the 16th century of the Republic's private banks. Another public bank, the ...
in the 12th century, did not formally create a public bank until 1587. However in the 13th and 14th centuries its Grain Office did a banking business that included both deposits and lending. The Republic's system of transferable public debt has also been identified as an important contribution to the development of banking. In the middle of the 13th century, groups of Italian Christians, particularly the Cahorsins and
Lombards The Lombards () or Langobards ( la, Langobardi) were a Germanic people who ruled most of the Italian Peninsula from 568 to 774. The medieval Lombard historian Paul the Deacon wrote in the ''History of the Lombards'' (written between 787 an ...
, invented
legal loophole A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the purpose, implied or explicitly stated, of the system. Originally, the word meant an arrowslit, a narrow verti ...
s to get around the ban on Christian usury;''Jewish Encyclopedia'' for example, one method of effecting a loan with interest was to offer money without interest, but also require that the loan be insured against possible loss or injury, and/or delays in repayment (see
contractum trinius {{unreferenced, date=August 2013 A ''contractum trinius'' was a set of contracts devised by European bankers and merchants in the Middle Ages as a method of circumventing canonical laws prohibiting usury as a part of Christian finance. At the ...
). The Christians utilizing these legal loopholes became known as the ''pope's usurers'', and reduced the importance of the Jews to European monarchs. Later in the Middle Ages, a distinction evolved between things that were consumable (such as food and fuel) and those that were not, with usury permitted on loans that involved the latter. The most powerful banking families came from Florence, including the
Acciaiuoli The Acciaioli, Acciaiuoli, Accioly, Acciajuoli or Acioli was an important family of Florence. Family name is also written Acciaioli, Acciainoli, or Accioly, Accioli, Acioli and Acyoly in Portugal and Brazil, where there are branches of it. Descen ...
, Mozzi, Bardi and Peruzzi families, which established branches in many other parts of Europe. Probably the most famous Italian bank was the Medici bank, set up by Giovanni di Bicci de' Medici in 1397 and continuing until 1494. ( Banca Monte dei Paschi di Siena S.p.A. (BMPS) Italy, is in fact the oldest banking organisation to have surviving banking-operations, or services). By the later Middle Ages, Christian Merchants who lent money with interest were without opposition, and Jews lost their privileged position as money-lenders. Italian bankers would take their place, and by 1327, Avignon had 43 branches of Italian banking houses. In 1347,
Edward III of England Edward III (13 November 1312 – 21 June 1377), also known as Edward of Windsor before his accession, was King of England and Lord of Ireland from January 1327 until his death in 1377. He is noted for his military success and for restoring ...
defaulted on loans. Later there was the bankruptcy of the Bardi (1343 ) and Peruzzi (1346 ). The accompanying growth of Italian banking in France was the start of the Lombard moneychangers in Europe, who moved from city to city along the busy pilgrim routes important for trade. Key cities in this period were Cahors, the birthplace of Pope John XXII, and Figeac. After 1400, political forces did in fact somewhat turn against the methods of the Italian free enterprise bankers. In 1401 King Martin I of Aragon had some of these bankers expelled. In 1403, Henry IV of England prohibited them from taking profits in any way in his kingdom. In 1409,
Flanders Flanders (, ; Dutch: ''Vlaanderen'' ) is the Flemish-speaking northern portion of Belgium and one of the communities, regions and language areas of Belgium. However, there are several overlapping definitions, including ones related to cultu ...
imprisoned and then expelled Genoese bankers. In 1410, all Italian merchants were expelled from Paris. In 1407, the
Bank of Saint George The Bank of Saint George ( it, Casa delle compere e dei banchi di San Giorgio or informally as ''Ufficio di San Giorgio'' or ''Banco'') was a financial institution of the Republic of Genoa. It was founded in 1407 to consolidate the public debt ...
, the first state-bank of deposit, was founded in Genoa and was to dominate business in the Mediterranean.


15th–17th centuries – Expansion


Italy

Between 1527 and 1572 a number of important banking family groups arose, such as the Grimaldi, Spinola and Pallavicino families, who were especially influential and wealthy, the Doria, although perhaps less influential, and the Pinelli and the Lomellini.


Spain and the Ottoman Empire

In 1401 the magistrates of
Barcelona Barcelona ( , , ) is a city on the coast of northeastern Spain. It is the capital and largest city of the autonomous community of Catalonia, as well as the second most populous municipality of Spain. With a population of 1.6 million within c ...
, then the capital of the Principality of Catalonia, established in the city the first replication of the Venetian model of exchange and deposit, Taula de canvi—the ''Table of Exchange'', considered to be the first public bank of Europe. Halil Inalcik suggests that, in the 16th century, Marrano Jews ( Doña Gracia from House of Mendes) fleeing from Iberia introduced the techniques of European capitalism, banking and even the mercantilist concept of state economy to the Ottoman Empire. In the 16th century, the leading financiers in Istanbul were Greeks and Jews. Many of the Jewish financiers were Marranos who had fled from Iberia during the period leading up to the expulsion of Jews from Spain. Some of these families brought great fortunes with them. The most notable of the Jewish banking families in the 16th-century Ottoman Empire was the Marrano banking house of Mendes, which moved to Istanbul in 1552, under the protection of Sultan Suleyman the Magnificent. When Alvaro Mendes arrived in Istanbul in 1588, he is reported to have brought with him 85,000 gold ducats. The Mendès family soon acquired a dominating position in the state finances of the Ottoman Empire and in commerce with Europe. They thrived in Baghdad during the 18th and 19th centuries under Ottoman rule, performing critical commercial functions such as moneylending and banking. Like the
Armenians Armenians ( hy, հայեր, ''hayer'' ) are an ethnic group native to the Armenian highlands of Western Asia. Armenians constitute the main population of Armenia and the ''de facto'' independent Artsakh. There is a wide-ranging diaspora ...
, the Jews could engage in necessary commercial activities, such as moneylending and banking, that were proscribed for Muslims under Islamic law.


Court Jew

Court Jews were Jewish bankers or businessmen who lent money and handled the finances of some of the Christian European
noble houses A noble is a member of the nobility. Noble may also refer to: Places Antarctica * Noble Glacier, King George Island * Noble Nunatak, Marie Byrd Land * Noble Peak, Wiencke Island * Noble Rocks, Graham Land Australia * Noble Island, Grea ...
, primarily in the 17th and 18th centuries. Court Jews were precursors to the modern financier or Secretary of the Treasury. Their jobs included raising revenues by
tax farming Farming or tax-farming is a technique of financial management in which the management of a variable revenue stream is assigned by legal contract to a third party and the holder of the revenue stream receives fixed periodic rents from the contra ...
, negotiating loans, master of the mint, creating new sources for revenue, floating debentures, devising new taxes. and supplying the military. In addition, the Court Jew acted as personal bankers for nobility: he raised money to cover the noble's personal diplomacy and his extravagances. Court Jews were skilled administrators and businessmen who received privileges in return for their services. They were most commonly found in Germany, Holland, and Austria, but also in Denmark, England, Hungary, Italy, Poland, Lithuania, Portugal, and Spain. According to Dimont, virtually every duchy, principality, and palatinate in the
Holy Roman Empire The Holy Roman Empire was a political entity in Western, Central, and Southern Europe that developed during the Early Middle Ages and continued until its dissolution in 1806 during the Napoleonic Wars. From the accession of Otto I in 962 unt ...
had a Court Jew.


Germany

In the southern German realm, two great banking families emerged in the 15th century, the Fuggers and the Welsers. They came to control much of the European economy and to dominate international high finance in the 16th century. The Fuggers built the first German social housing area for the poor in
Augsburg Augsburg (; bar , Augschburg , links=https://en.wikipedia.org/wiki/Swabian_German , label=Swabian German, , ) is a city in Swabia, Bavaria, Germany, around west of Bavarian capital Munich. It is a university town and regional seat of the ' ...
, the Fuggerei. It still exists, but not the original Fugger Bank which lasted from 1486 to 1647. Dutch bankers played a central role in establishing banking in the Northern German city states. Berenberg Bank is the oldest bank in Germany and the world's second oldest, established in 1590 by Dutch brothers Hans and Paul Berenberg in Hamburg. The bank is still owned by the Berenberg dynasty.


Netherlands

In the 16th and 17th century, precious metals from the New World, Gold Coast, Japan and other locales were being imported into Europe, with corresponding price increases. Thanks to the free coinage, the Bank of Amsterdam, and the heightened trade and commerce, the Netherlands attracted even more coin and bullion to be deposited in their banks. The concepts of
fractional-reserve banking Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserv ...
and payment systems were further developed and spread to England and elsewhere.


England

In the City of London there were no banking houses operating in a manner recognized as so today until the 17th century, although the London Royal Exchange was established in 1565.


17th–19th centuries – The emergence of modern banking

By the end of the 16th century and during the 17th, the traditional banking functions of accepting deposits, moneylending,
money changing A money changer is a person or organization whose business is the exchange of coins or currency of one country for that of another. This trade was a predecessor of modern banking. The advent of paper money in the mid-17th century and the develop ...
, and transferring funds were combined with the issuance of bank
debt Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
that served as a substitute for
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
and
silver Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical ...
coins. New banking practices promoted commercial and industrial growth by providing a safe and convenient means of payment and a money supply more responsive to commercial needs, as well as by "discounting" business debt. By the end of the 17th century, banking was also becoming important for the funding requirements of the combative European states. This would lead on to government regulations and the first
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a centra ...
s. The success of the new banking techniques and practices in Amsterdam and London helped spread the concepts and ideas elsewhere in Europe.


Goldsmiths of London

Modern banking practice, including fractional reserve banking and the issue of
banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
s, emerged in the 17th century. At the time, wealthy merchants began to store their gold with the goldsmiths of
London London is the capital and List of urban areas in the United Kingdom, largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-east England at the head of a estuary dow ...
, who possessed private vaults and charged a fee for their service. In exchange for each deposit of precious metal, the goldsmiths issued
receipt A receipt (also known as a packing list, packing slip, packaging slip, (delivery) docket, shipping list, delivery list, bill of the parcel, manifest, or customer receipt) is a document acknowledging that a person has received money or proper ...
s certifying the quantity and purity of the metal they held as a bailee; these receipts could not be assigned, only the original depositor could collect the stored goods. Gradually the goldsmiths began to lend the money out on behalf of the depositor, which led to the development of modern banking practices; promissory notes (which evolved into banknotes) were issued for money deposited as a loan to the goldsmith. These practices created a new kind of "money" that was actually debt, that is, goldsmiths' debt rather than silver or gold coin, a commodity that had been regulated and controlled by the monarchy. This development required the acceptance in trade of the goldsmiths' promissory notes, payable on demand. Acceptance in turn required a general belief that coin would be available; and a fractional reserve normally served this purpose. Acceptance also required that the holders of debt be able to legally enforce an unconditional right to payment; it required that the notes (as well as drafts) be negotiable instruments. The concept of negotiability had emerged in fits and starts in European money markets, but it was well developed by the 17th century. Nevertheless, an act of Parliament was required in the early 18th century (1704) to overrule court decisions holding that the goldsmiths' notes, despite the "customs of merchants", were not negotiable.


The modern bank

In 1695, the Bank of England became one of the first banks to issue banknotes, the first being the short-lived banknotes issued by Stockholms Banco in 1661. Initially, these were hand-written and issued on deposit or as a loan, and promised to pay the bearer the value of the note on demand in specie. By 1745, standardized printed notes ranging from £20 to £1,000 were being issued. Fully printed notes that didn't require the name of the payee and the cashier's
signature A signature (; from la, signare, "to sign") is a Handwriting, handwritten (and often Stylization, stylized) depiction of someone's name, nickname, or even a simple "X" or other mark that a person writes on documents as a proof of identity and ...
first appeared in 1855. In the 18th century, services offered by banks increased. Clearing facilities, security investments, cheques and overdraft protections were introduced. Cheques had been used since the 1600s in England and banks settled payments by direct courier to the issuing bank. Around 1770, they began meeting in a central location, and by the 1800s a dedicated space was established, known as a bankers' clearing house. The method used by the London clearing house involved each bank paying cash to an inspector and then being paid cash by the inspector at the end of each day. The first overdraft facility was set up in 1728 by the Royal Bank of Scotland. The number of banks increased during the
Industrial Revolution The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
and the growing international trade, especially in London. At the same time, new types of financial activities broadened the scope of banking. The merchant-banking families dealt in everything from underwriting bonds to originating foreign loans. These new "merchant banks" facilitated trade growth, profiting from England's emerging dominance in seaborne shipping. Two immigrant families,
Rothschild Rothschild () is a name derived from the German ''zum rothen Schild'' (with the old spelling "th"), meaning "with the red sign", in reference to the houses where these family members lived or had lived. At the time, houses were designated by sign ...
and Baring, established merchant banking firms in London in the late 18th century and came to dominate world banking in the next century. A great impetus to country banking came in 1797 when, with England threatened by war, the Bank of England suspended cash payments. A handful of Frenchmen landed in Pembrokeshire, causing a panic. Shortly after this incident, Parliament authorised the Bank of England and country bankers to issue notes of low denomination.


Chinese banking

During the Qing dynasty, the private nationwide financial system in China was first developed by the
Shanxi merchants Shanxi merchants, also known as Jin merchants (), were the group of merchants from Shanxi province, China. ''Jin'' is an abbreviated name of Shanxi. Even though the history of noticeable Shanxi merchants can be dated back to as early as the Spring ...
, with the creation of so-called "draft banks". The first draft bank
Rishengchang The Rishengchang Piaohao (), was the first draft bank in China. It is located in Pingyao, Shanxi province, China. literally translates to 'Sunrise Prosperity', and means 'draft banks', the predecessors of modern banks in China. It was estimated ...
was created around 1823 in Pingyao. Some large draft banks had branches in Russia, Mongolia and Japan to facilitate international trade. Throughout the 19th century, the central Shanxi region became the de facto financial centre of Qing China. With the fall of the Qing dynasty, the financial centers gradually shifted to
Shanghai Shanghai (; , , Standard Chinese, Standard Mandarin pronunciation: ) is one of the four Direct-administered municipalities of China, direct-administered municipalities of the China, People's Republic of China (PRC). The city is located on the ...
, with western-style modern banks flourishing. Today, the financial centres in China are Hong Kong, Beijing, Shanghai and Shenzhen.


Japanese banking

In 1868, the Meiji government attempted to formulate a functioning banking system, which continued until some time during 1881. They emulated French models. The Imperial mint began using imported machines from Britain in the early years of the Meiji period. Masayoshi Matsukata was a formative figure of a later banking initiative.


Development of central banking

The Bank of Amsterdam became a model for the functioning of a bank in the capacity of monetary exchange and started the development of
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a centra ...
s. An early central bank was the Sveriges Riksbank, established in 1668, although this was short-lived. In England in the 1690s, public funds were in short supply and were needed to finance the ongoing conflict with France. The credit of William III's government was so low in London that it was impossible for it to borrow the £1,200,000 (at 8 per cent) that the government wanted. In order to induce subscription to the loan, the subscribers were to be incorporated by the name of the Governor and Company of the Bank of England. The bank was given exclusive possession of the government's balances, and was the only limited-liability corporation allowed to issue
banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
s. The lenders would give the government cash (bullion) and also issue notes against the government bonds, which can be lent again. The £1.2M was raised in 12 days; half of this was used to rebuild the Navy. The establishment of the Bank of England, the model on which most modern central banks have been based on, was devised by Charles Montagu, 1st Earl of Halifax, in 1694, to the plan which had been proposed by William Paterson three years before, but had not been acted upon. He proposed a loan of £1.2M to the government; in return the subscribers would be incorporated as ''The Governor and Company of the Bank of England'' with long-term banking privileges including the issue of notes. The
Royal Charter A royal charter is a formal grant issued by a monarch under royal prerogative as letters patent. Historically, they have been used to promulgate public laws, the most famous example being the English Magna Carta (great charter) of 1215, b ...
was granted on 27 July through the passage of the
Tonnage Act 1694 The Bank of England Act 1694 (5 & 6 Will & Mar c 20), sometimes referred to as the Tonnage Act 1694, is an Act of the Parliament of England. It is one of the Bank of England Acts 1694 to 1892.The Short Titles Act 1896, section 2(1) and Schedule ...
. Although the Bank was originally a private institution, by the end of the 18th century it was increasingly being regarded as a public authority with civic responsibility toward the upkeep of a healthy financial system. The currency crisis of 1797, caused by panicked depositors withdrawing from the Bank led to the government suspending convertibility of notes into specie payment. The bank was soon accused by the bullionists of causing the exchange rate to fall from over issuing banknotes, a charge which the Bank denied. Nevertheless, it was clear that the Bank was being treated as an organ of the state. Henry Thornton, a merchant banker and monetary theorist has been described as the father of the modern central bank. An opponent of the real bills doctrine, he was a defender of the bullionist position and a significant figure in monetary theory, his process of monetary expansion anticipating the theories of
Knut Wicksell Johan Gustaf Knut Wicksell (December 20, 1851 – May 3, 1926) was a leading Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to t ...
regarding the "cumulative process which restates the Quantity Theory in a theoretically coherent form". As a response 1797 currency crisis, Thornton wrote in 1802 '' An Enquiry into the Nature and Effects of the Paper Credit of Great Britain'', in which he argued that the increase in paper credit did not cause the crisis. The book also gives a detailed account of the British monetary system as well as a detailed examination of the ways in which the Bank of England should act to counteract fluctuations in the value of the pound. Until the mid-nineteenth century, commercial banks were able to issue their own banknotes, and notes issued by provincial banking companies were commonly in circulation. Many consider the origins of the central bank to lie with the passage of the Bank Charter Act of 1844. Under the 1844 Act, bullionism was institutionalized in Britain, creating a ratio between the gold reserves held by the Bank of England and the notes that the Bank could issue. Mary Poovey, ''Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain'' (University of Chicago Press, 2008), p. 49. The Act also placed strict curbs on the issuance of notes by the country banks. The Bank accepted the role of 'lender of last resort' in the 1870s after criticism of its lacklustre response to the Overend-Gurney crisis. The journalist
Walter Bagehot Walter Bagehot ( ; 3 February 1826 – 24 March 1877) was an English journalist, businessman, and essayist, who wrote extensively about government, economics, literature and race. He is known for co-founding the '' National Review'' in 185 ...
wrote an influential work on the subject '' Lombard Street: A Description of the Money Market'', in which he advocated for the Bank to officially become a lender of last resort during a
credit crunch A credit crunch (also known as a credit squeeze, credit tightening or credit crisis) is a sudden reduction in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from banks. A credit cr ...
(sometimes referred to as "Bagehot's dictum"). Central banks were established in many European countries during the 19th century. The War of the Second Coalition led to the creation of the
Banque de France The Bank of France (French: ''Banque de France''), headquartered in Paris, is the central bank of France. Founded in 1800, it began as a private institution for managing state debts and issuing notes. It is responsible for the accounts of the ...
in 1800, in an effort to improve the public financing of the war. The
US Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
was created by the U.S. Congress through the passing of
The Federal Reserve Act The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson on December 23, 1913. The law created the Federal Reserve System, the central banking system of the United States. The Panic ...
in 1913. Australia established its first central bank in 1920, Colombia in 1923,
Mexico Mexico (Spanish language, Spanish: México), officially the United Mexican States, is a List of sovereign states, country in the southern portion of North America. It is borders of Mexico, bordered to the north by the United States; to the so ...
and
Chile Chile, officially the Republic of Chile, is a country in the western part of South America. It is the southernmost country in the world, and the closest to Antarctica, occupying a long and narrow strip of land between the Andes to the eas ...
in 1925 and
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by to ...
and
New Zealand New Zealand ( mi, Aotearoa ) is an island country in the southwestern Pacific Ocean. It consists of two main landmasses—the North Island () and the South Island ()—and over 700 smaller islands. It is the sixth-largest island coun ...
in the aftermath of the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
in 1934. By 1935, the only significant independent nation that did not possess a central bank was
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
, which subsequently developed a precursor thereto in 1945 and the present central bank twenty years later. Having gained independence, African and Asian countries also established central banks or monetary union.


Rothschilds

The Rothschild family pioneered international finance in the early 19th century. The family provided loans to the Bank of England and purchased government bonds in the stock markets. Their wealth has been estimated to possibly be the most in modern history. In 1804, Nathan Mayer Rothschild began to deal on the
London stock exchange London Stock Exchange (LSE) is a stock exchange in the City of London, England, United Kingdom. , the total market value of all companies trading on LSE was £3.9 trillion. Its current premises are situated in Paternoster Square close to St Pau ...
in financial instruments such as foreign bills and government securities. From 1809 Rothschild began to deal in gold bullion, and developed this as a cornerstone of his business. From 1811 on, in negotiation with Commissary-General
John Charles Herries John Charles Herries PC (November 1778 – 24 April 1855), known as J. C. Herries, was a British politician and financier and a frequent member of Tory and Conservative cabinets in the early to mid-19th century. Background and education Herr ...
, he undertook to transfer money to pay
Wellington Wellington ( mi, Te Whanganui-a-Tara or ) is the capital city of New Zealand. It is located at the south-western tip of the North Island, between Cook Strait and the Remutaka Range. Wellington is the second-largest city in New Zealand by ...
's troops, on campaign in Portugal and Spain against
Napoleon Napoleon Bonaparte ; it, Napoleone Bonaparte, ; co, Napulione Buonaparte. (born Napoleone Buonaparte; 15 August 1769 – 5 May 1821), later known by his regnal name Napoleon I, was a French military commander and political leader wh ...
, and later to make subsidy payments to British allies when these organized new troops after Napoleon's disastrous Russian campaign. His four brothers helped co-ordinate activities across the continent, and the family developed a network of agents, shippers and couriers to transport gold—and information—across Europe. This private intelligence service enabled Nathan to receive in London the news of Wellington's victory at the
Battle of Waterloo The Battle of Waterloo was fought on Sunday 18 June 1815, near Waterloo (at that time in the United Kingdom of the Netherlands, now in Belgium). A French army under the command of Napoleon was defeated by two of the armies of the Sevent ...
a full day ahead of the government's official messengers. The Rothschild family were instrumental in supporting railway systems across the world and in complex government financing for projects such as the Suez Canal. The family bought up a large proportion of the property in Mayfair, London. Major businesses directly founded by Rothschild family capital include Alliance Assurance (1824) (now Royal & SunAlliance); Chemin de Fer du Nord (1845); Rio Tinto Group (1873); Société Le Nickel (1880) (now Eramet); and Imétal (1962) (now Imerys). The Rothschilds financed the founding of De Beers, as well as Cecil Rhodes on his expeditions in Africa and the creation of the colony of Rhodesia. The Japanese government approached the London and Paris families for funding during the
Russo-Japanese War The Russo-Japanese War ( ja, 日露戦争, Nichiro sensō, Japanese-Russian War; russian: Ру́сско-япóнская войнá, Rússko-yapónskaya voyná) was fought between the Empire of Japan and the Russian Empire during 1904 and 1 ...
. The London consortium's issue of Japanese war bonds would total £11.5 million (at 1907 currency rates).Richard Smethurs
"Takahasi Korekiyo, the Rothschilds and the Russo-Japanese War, 1904–1907"
. Retrieved 4 September 2007.
From 1919 to 2004 the Rothschilds' Bank in London played a role as place of the gold fixing.


Napoleonic wars and Paris

Napoleon III Napoleon III (Charles Louis Napoléon Bonaparte; 20 April 18089 January 1873) was the first President of France (as Louis-Napoléon Bonaparte) from 1848 to 1852 and the last monarch of France as Emperor of the French from 1852 to 1870. A neph ...
had the goal of overtaking London to make Paris the premier financial center of the world, but the war in 1870 reduced the range of Parisian financial influence. Paris had emerged as an international center of finance in the mid-19th century second only to London. It had a strong national bank and numerous aggressive private banks that financed projects all across Europe and the expanding French Empire. One key development was setting up one of the main branches of the Rothschild family. In 1812,
James Mayer Rothschild James Mayer de Rothschild, Baron de Rothschild (born Jakob Mayer Rothschild; 15 May 1792 – 15 November 1868) was a German- French banker and the founder of the French branch of the Rothschild family. Early life James de Rothschild was bor ...
arrived in Paris from Frankfurt, and set up the bank "De Rothschild Frères". This bank funded Napoleon's return from Elba and became one of the leading banks in European finance. The
Rothschild banking family of France The Rothschild banking family of France (french: Famille banquière Rothschild) is a French banking dynasty founded in 1812 in Paris (at the time in the First French Empire) by James Mayer de Rothschild (1792–1868). James was sent there fr ...
funded France's major wars and colonial expansion. The
Banque de France The Bank of France (French: ''Banque de France''), headquartered in Paris, is the central bank of France. Founded in 1800, it began as a private institution for managing state debts and issuing notes. It is responsible for the accounts of the ...
, founded in 1796 helped resolve the financial crisis of 1848 and emerged as a powerful central bank. The
Comptoir National d'Escompte de Paris The Comptoir national d'escompte de Paris (CNEP), from 1854 to 1889 Comptoir d'escompte de Paris (CEP), was a major French bank active from 1848 to 1966. The CEP was created by decree on 10 March 1848 by the French Provisional Government, in res ...
(CNEP) was established during the financial crisis and the republican revolution of 1848. Its innovations included both private and public sources in funding large projects, and the creation of a network of local offices to reach a much larger pool of depositors.


Building societies

Building societies were established as financial institutions owned by their members as
mutual organization A mutual organization, or mutual society is an organization (which is often, but not always, a company or business) based on the principle of mutuality and governed by private law. Unlike a true cooperative, members usually do not contribute ...
s. The origins of the building society as an institution lie in late-18th century
Birmingham Birmingham ( ) is a city and metropolitan borough in the metropolitan county of West Midlands in England. It is the second-largest city in the United Kingdom with a population of 1.145 million in the city proper, 2.92 million in the We ...
—a town which was undergoing rapid economic and physical expansion driven by a multiplicity of small metalworking firms, whose many highly skilled and prosperous owners readily invested in property. Many of the early building societies were based in taverns or coffeehouses, which had become the focus for a network of clubs and societies for co-operation and the exchange of ideas among Birmingham's highly active citizenry as part of the movement known as the
Midlands Enlightenment The Midlands Enlightenment, also known as the West Midlands Enlightenment or the Birmingham Enlightenment, was a scientific, economic, political, cultural and legal manifestation of the Age of Enlightenment that developed in Birmingham and the wide ...
. The first building society to be established was
Ketley's Building Society Ketley's Building Society, founded in Birmingham, England, in 1775, was the world's first building society. The society was formed by Richard Ketley, the landlord at the Golden Cross inn at 60 Snow Hill. Taverns and coffeehouses were important me ...
, founded by Richard Ketley, the landlord of the ''Golden Cross'' inn, in 1775. Members of Ketley's society paid a monthly subscription to a central pool of funds which was used to finance the building of houses for members, which in turn acted as collateral to attract further funding to the society, enabling further construction. The first outside the
English Midlands The Midlands (also referred to as Central England) are a part of England that broadly correspond to the Kingdom of Mercia of the Early Middle Ages, bordered by Wales, Northern England and Southern England. The Midlands were important in the ...
was established in
Leeds Leeds () is a city and the administrative centre of the City of Leeds district in West Yorkshire, England. It is built around the River Aire and is in the eastern foothills of the Pennines. It is also the third-largest settlement (by popul ...
in 1785.


Mutual savings bank

Mutual savings banks also emerged at that time, as financial institutions chartered by government, without capital stock, and owned by their members who subscribe to common funds. The institution most frequently identified as the first modern savings bank was the "Savings and Friendly Society" organized by the Reverend Henry Duncan in 1810, in Ruthwell,
Scotland Scotland (, ) is a country that is part of the United Kingdom. Covering the northern third of the island of Great Britain, mainland Scotland has a border with England to the southeast and is otherwise surrounded by the Atlantic Ocean to ...
. Rev. Duncan established the small bank in order to encourage his working class congregation to develop thrift. Another precursor to the modern savings bank originated in Germany, with Franz Hermann Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen who developed cooperative banking models that led on to the
credit union A credit union, a type of financial institution similar to a commercial bank, is a member-owned nonprofit financial cooperative. Credit unions generally provide services to members similar to retail banks, including deposit accounts, provis ...
movement. The traditional banks had viewed poor and rural communities as unbankable because of very small, seasonal flows of cash and very limited human resources. In the history of credit unions the concepts of cooperative banking spread through northern Europe and onto the US at the turn of the 20th century under a wide range of different names.


Postal savings system

To provide depositors who did not have access to banks a safe, convenient method to save money and to promote saving among the poor, the postal savings system was introduced in
Great Britain Great Britain is an island in the North Atlantic Ocean off the northwest coast of continental Europe. With an area of , it is the largest of the British Isles, the largest European island and the ninth-largest island in the world. It ...
in 1861. It was vigorously supported by
William Ewart Gladstone William Ewart Gladstone ( ; 29 December 1809 – 19 May 1898) was a British statesman and Liberal politician. In a career lasting over 60 years, he served for 12 years as Prime Minister of the United Kingdom, spread over four non-con ...
, then Chancellor of the Exchequer, who saw it as a cheap way to finance the public debt. At the time, banks were mainly in the cities and largely catered to wealthy customers. Rural citizens and the poor had no choice but to keep their funds at home or on their persons. The original Post Office Savings Bank was limited to deposits of £30 a year with a maximum balance of £150. Interest was paid at the rate of two and one-half percent per year on whole pounds in the account. Similar institutions were created in a number of different countries in Europe, North America, and Japan. One example was in 1881 the Dutch government created the Rijkspostspaarbank (State post savings bank), a postal savings system to encourage workers to start saving. Four decades later they added the Postcheque and Girodienst services allowing working families to make payments via post offices in the Netherlands.


20th century

The first decade of the 20th century saw the Panic of 1907 in the US, which led to numerous runs on banks and became known as the bankers panic.


Great Depression

During the Crash of 1929 preceding the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
, margin requirements were only 10%. Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20–50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday. Bank failures snowballed as desperate bankers called in loans that borrowers did not have time or money to repay. With future profits looking poor,
capital investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. In all, over 9,000 banks failed during the 1930s. In response, many countries significantly increased financial regulation. The U.S. established the Securities and Exchange Commission in 1933, and passed the Glass–Steagall Act, which separated investment banking and
commercial banking A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. It can also refer to a bank, or a division of a large bank, which deals with c ...
. This was to avoid more risky investment banking activities from ever again causing commercial bank failures.


World Bank and the development of payment technology

During the post
second world war World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposi ...
period and with the introduction of the Bretton Woods system in 1944, two organizations were created: the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) and the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
. Encouraged by these institutions, commercial banks started to lend to sovereign states in the third world. This was at the same time as inflation started to rise in the west. The
Gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from th ...
was eventually abandoned in 1971 and a number of the banks were caught out and became bankrupt due to third world country debt defaults. This was also a time of increasing use of technology in retail banking. In 1959, banks agreed on a standard for machine readable characters ( MICR) that was patented in the United States for use with cheques, which led to the first automated reader-sorter machines. In the 1960s, the first
Automated Teller Machine An automated teller machine (ATM) or cash machine (in British English) is an electronic telecommunications device that enables customers of financial institutions to perform financial transactions, such as cash withdrawals, deposits, fund ...
s (ATM) or Cash machines were developed and first machines started to appear by the end of the decade. Banks started to become heavy investors in computer technology to automate much of the manual processing, which began a shift by banks from large clerical staffs to new automated systems. By the 1970s the first payment systems started to develop that would lead to electronic payment systems for both international and domestic payments. The international SWIFT payment network was established in 1973 and domestic payment systems were developed around the world by banks working together with governments.


Deregulation and globalization

Global banking and capital market services proliferated during the 1980s after deregulation of financial markets in a number of countries. The 1986 ' Big Bang' in London allowing banks to access capital markets in new ways, which led to significant changes to the way banks operated and accessed capital. It also started a trend where retail banks started to acquire investment banks and stock brokers creating
universal bank A universal bank participates in many kinds of banking activities and is both a commercial bank and an investment bank as well as providing other financial services such as insurance.Glass–Steagall Act was repealed in 1999 (during the Clinton Administration), this saw US retail banks embark on big rounds of mergers and acquisitions and also engage in investment banking activities. Financial services continued to grow through the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. This period saw a significant internationalization of financial markets. The increase of U.S. Foreign investments from Japan not only provided the funds to corporations in the U.S., but also helped finance the federal government. The dominance of U.S. financial markets was disappearing and there was an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which enabled them to expand their activities. Thus, American corporations and banks started seeking investment opportunities abroad, prompting the development in the U.S. of mutual funds specializing in trading in foreign stock markets. Such growing internationalization and opportunity in financial services changed the competitive landscape, as now many banks would demonstrate a preference for the "universal banking" model prevalent in Europe.
Universal bank A universal bank participates in many kinds of banking activities and is both a commercial bank and an investment bank as well as providing other financial services such as insurance.

21st century

The early 2000s were marked by consolidation of existing banks and entrance into the market of other financial intermediaries:
non-bank financial institution. Large corporate players were beginning to find their way into the financial service community, offering competition to established banks. The main services offered included
insurance Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge ...
, pension, mutual, money market and
hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as ...
s, loans and
credits Credit refers to any form of deferred payment, the granting of a loan and the creation of debt. Credit may also refer to: Places * Credit, Arkansas, a ghost town * Credit River, a river in Ontario, Canada * Credit River (Minnesota), a river ...
and securities. Indeed, by the end of 2001 the market capitalisation of the world's 15 largest financial services providers included four non-banks. The first decade of the 21st century saw the culmination of the technical innovation in banking over the previous 30 years and saw a major shift away from traditional banking to internet banking. Starting in 2015 developments such as open banking made it easier for third parties to access bank transaction data and introduced standard API and security models. The process of financial innovation also advanced enormously in the first few decades of the 21st century, increasing the importance and profitability of nonbank finance. Such profitability priorly restricted to the non-banking industry, has prompted the
Office of the Comptroller of the Currency The Office of the Comptroller of the Currency (OCC) is an independent bureau within the United States Department of the Treasury that was established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all nat ...
(OCC) to encourage banks to explore other financial instruments, diversifying banks' business as well as improving banking economic health. Hence, as the distinct financial instruments are being explored and adopted by both the banking and non-banking industries, the distinction between different financial institutions is gradually vanishing. For example, in 2020, the OCC muddled the distinction between traditional banking and the cryptocurrency ecosystem when it published a number of interpretive letters clarifying national banks' ability to custody cryptocurrency and provide banking services to cryptocurrency companies, as well as use blockchain innovations like stablecoins as settlement infrastructure. In addition, in 2021, the OCC granted its first federal banking charter to Anchorage Digital, a digital asset platform for institutions.


2007–2008 financial crisis

The
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of ...
caused significant stress on banks around the world. The failure of a large number of major banks resulted in government bail-outs. The collapse and fire sale of
Bear Stearns The Bear Stearns Companies, Inc. was a New York-based global investment bank, securities trading and brokerage firm that failed in 2008 as part of the global financial crisis and recession, and was subsequently sold to JPMorgan Chase. The com ...
to
JPMorgan Chase JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, t ...
in March 2008 and the collapse of
Lehman Brothers Lehman Brothers Holdings Inc. ( ) was an American global financial services firm founded in 1847. Before filing for bankruptcy in 2008, Lehman was the fourth-largest investment bank in the United States (behind Goldman Sachs, Morgan Stanley, ...
in September that same year led to a credit crunch and global banking crises. In response governments around the world bailed-out, nationalised or arranged fire sales for a large number of major banks. Starting with the Irish government on 29 September 2008, governments around the world provided wholesale guarantees to underwriting banks to avoid panic of systemic failure to the whole banking system. These events spawned the term ' too big to fail' and resulted in a lot of discussion about the moral hazard of these actions.


Major events in the history of banking

*1100 – Knights Templar run earliest European wide/Mideast banking until the 14th century. *1397 – The Medici Bank of Florence is established in Italy and operates until 1494. *1542 –
The Great Debasement The Great Debasement (1544–1551) was a currency debasement policy introduced in 1544 England under the order of Henry VIII which saw the amount of precious metal in gold and silver coins reduced and in some cases replaced entirely with cheaper ba ...
, the English Crown's policy of coin debasement during the reigns of Henry VIII and Edward VI. *1553 – The first joint-stock company, the Company of Merchant Adventurers to New Lands, was chartered in London. *1602 – The
Amsterdam Stock Exchange Euronext Amsterdam is a stock exchange based in Amsterdam, the Netherlands. Formerly known as the Amsterdam Stock Exchange, it merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext. The r ...
was established by the
Dutch East India Company The United East India Company ( nl, Verenigde Oostindische Compagnie, the VOC) was a chartered company established on the 20th March 1602 by the States General of the Netherlands amalgamating existing companies into the first joint-stock ...
for dealings in its printed stocks and bonds. *1609 – The Amsterdamsche Wisselbank (Amsterdam Exchange Bank) was founded. *1656 – The first European bank to use banknotes opened in Sweden for private clients, in 1668 the institution converted to a public bank. *1690s – The Massachusetts Bay Colony was the first of the
Thirteen Colonies The Thirteen Colonies, also known as the Thirteen British Colonies, the Thirteen American Colonies, or later as the United Colonies, were a group of British colonies on the Atlantic coast of North America. Founded in the 17th and 18th centu ...
to issue permanently circulating
banknote A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable instrument, negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand. Banknotes w ...
s. *1694 – The Bank of England was founded to supply money to the English King. *1695 – The Parliament of Scotland created the Bank of Scotland. *1716 –
John Law John Law may refer to: Arts and entertainment * John Law (artist) (born 1958), American artist * John Law (comics), comic-book character created by Will Eisner * John Law (film director), Hong Kong film director * John Law (musician) (born 1961) ...
opened Banque Générale in France. *1717 – Master of the Royal Mint Sir Isaac Newton established a new mint ratio between silver and gold that had the effect of driving silver out of circulation ( bimetalism) and putting Britain on a
gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from th ...
. *1720 – The South Sea Bubble and John Law's Mississippi Scheme failure caused a European financial crisis and forced many bankers out of business. *1775 – The first
building society A building society is a financial institution owned by its members as a mutual organization. Building societies offer banking and related financial services, especially savings and mortgage lending. Building societies exist in the United Ki ...
,
Ketley's Building Society Ketley's Building Society, founded in Birmingham, England, in 1775, was the world's first building society. The society was formed by Richard Ketley, the landlord at the Golden Cross inn at 60 Snow Hill. Taverns and coffeehouses were important me ...
, was established in Birmingham, England. *1782 – The Bank of North America opened. *1791 – The First Bank of the United States was chartered by the United States Congress for 20 years. *1800 – The Rothschild family establishes European wide banking. *1800 – Napoleon Bonaparte founds the Bank of France on 18 January.Kindleberger – p. 12 (see : Sources) *1811 – The Senate tied on a vote to renew the charter of the First Bank of the United States charter. Vice President George Clinton broke the tie and voted against renewal, and the bank was dissolved. *1816 – The Second Bank of the United States was chartered for five years after the First Bank of the United States lost its charter. This charter was also for 20 years. The bank was created to finance the country in the after the
War of 1812 The War of 1812 (18 June 1812 – 17 February 1815) was fought by the United States of America and its indigenous allies against the United Kingdom and its allies in British North America, with limited participation by Spain in Florida. It be ...
. *1817 – The New York Stock Exchange Board was established. *1818 – The first savings bank of Paris was established. *1825 – Panic of 1825 in which 70 UK banks fail *1862 – To finance the
American Civil War The American Civil War (April 12, 1861 – May 26, 1865; also known by Names of the American Civil War, other names) was a civil war in the United States. It was fought between the Union (American Civil War), Union ("the North") and t ...
, the federal government under U.S. President
Abraham Lincoln Abraham Lincoln ( ; February 12, 1809 – April 15, 1865) was an American lawyer, politician, and statesman who served as the 16th president of the United States from 1861 until his assassination in 1865. Lincoln led the nation throu ...
issued legal tender paper money, called " greenbacks". *1874 – The Specie Payment Resumption Act was passed provided for the redemption of United States paper currency, in gold, beginning in 1879. *1913 – The
Federal Reserve Act The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson on December 23, 1913. The law created the Federal Reserve System, the central banking system of the United States. The Pani ...
created the
Federal Reserve System The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
, the central banking system of the United States, and granted it the legal authority to issue legal tender. *1930–33 – In the wake of the Wall Street Crash of 1929, 9,000 banks close, wiping out one third of the money supply in the United States.Hawkins, William
"Panic Control"
''The Washington Times'', 12 May 2008
*1933 – Executive Order 6102 signed by U.S. President Franklin D. Roosevelt forbade ownership of gold coin, gold bullion, and gold certificates by US citizens beyond a certain amount, effectively ending the convertibility of US dollars into gold. *1971 – The Nixon Shock was a series of economic measures taken by U.S. President
Richard Nixon Richard Milhous Nixon (January 9, 1913April 22, 1994) was the 37th president of the United States, serving from 1969 to 1974. A member of the Republican Party, he previously served as a representative and senator from California and was ...
which canceled the direct convertibility of the United States dollar to gold by foreign nations. This essentially ended the existing Bretton Woods system of international financial exchange. *1986 – The "Big Bang" (deregulation of London financial markets) served as a catalyst to reaffirm London's position as a global centre of world banking. *2007 – Start of the Late-2000s financial crisis that saw the credit crunch that led to the failure and bail-out of a large number of the world's biggest banks. *2008 – Washington Mutual collapses, the largest bank failure in history up to that point.


See also

* Money creation * Monetary reform *
History of money The history of money concerns the development throughout time of systems that provide the functions of money. Such systems can be understood as means of trading wealth indirectly; not directly as with bartering. Money is a mechanism that facili ...
* Banker (ancient) * Branchless banking * History of the cheque *
Early Canadian banking system The early Canadian banking system (British North America and New France until 1763; then renamed Upper and Lower Canada) was regulated entirely by the colonial government. Primitive forms of banking emerged early in the colonial period to solve t ...
* History of banking in the United States * Global financial system * History of Virtual Cryptobanking with Bitcoin *
List of recessions The following articles contain lists of recessions: *List of recessions in the United Kingdom *List of recessions in the United States There have been as many as 48 recessions in the United States dating back to the Articles of Confederation, ...
* Online banking * Open banking


References


Footnotes


Citations


Further reading

*Andreades, Andreas Michael. ''History of the Bank of England'' (Routledge, 2013) * Cameron, Rondo. ''Banking in the Early Stages of Industrialization: A Study in Comparative Economic History'' (1967) *Cameron, Rondo et al. ''International Banking 1870–1914'' (1992) * *Feis, Herbert. ''Europe the World's Banker, 1870–1914'' (1930
online
* Ferguson, Niall. '' The Ascent of Money: A Financial History of the World'' (2008). * Ferguson, Niall. '' The House of Rothschild: Volume 2: The World's Banker: 1849-1999'' (2000) *Grossman, Richard S. ''Unsettled Account: The Evolution of Banking in the Industrialized World Since 1800'' (Princeton University Press; 2010) 384 pages. Considers how crises, bailouts, mergers, and regulations have shaped the history of banking in Western Europe, the United States, Canada, Japan, and Australia. * Hammond, Bray, '' Banks and Politics in America, from the Revolution to the Civil War'' (Princeton University Press, 1957) *Hudson, Peter James. "On the History and Historiography of Banking in the Caribbean." ''Small Axe'' 18.1 43 (2014): 22–37. *Jaffe, Steven H., and Jessica Lautin. ''Capital of Capital: Money, Banking, and Power in New York City'' (Columbia University Press, 2014) * Kindleberger, Charles P.
A Financial History of Western Europe
* Klebaner, Benjamin J. ''American commercial banking: A history'' (Twayne, 1990)
online
*Kobrak, Christopher, and Wilkins, Mira, eds. ''History and Financial Crisis: Lessons from the 20th Century'' (Routledge, 2014) *Komai, Alejandro, and Gary Richardson. "A history of financial regulation in the USA from the beginning until today: 1789 to 2011." in ''Handbook of Financial Data and Risk Information I'' (2014): 385+. * Lane, Nicholas. "The Fathers of English Banking." ''History Today'' (Mar 1953) 3#3 pp 190–199 * Meltzer, Allan H. ''A History of the Federal Reserve'' (2 vol. U of Chicago Press, 2010) on U.S. * Michie, Ranald C. ''British Banking: Continuity and Change from 1694 to the Present'' (Oxford UP, 2016) 334 pp
online review
* Murphy, Sharon Ann. ''Other People's Money: How Banking Worked in the Early American Republic'' (2017
online review
*Neal, Larry. "How it all began: the monetary and financial architecture of Europe during the first global capital markets, 1648–1815." ''Financial History Review'' (2000) 7#2 pp: 117–140. * Rothbard, Murray N., '' History of Money and Banking in the United States''
Full text (510 pages) in pdf format
*Soyeda, Juichi. ''A history of banking in Japan''


External links

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eabh (The European Association for Banking and Financial History)Banking and Bankers
at Encyclopedia.com Articles containing video clips Economic history of Italy