history of banking

The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumer. Later, in ancient Greece and during the Roman Empire, lenders based in temples gave loans, while accepting deposits and performing the change of money. Archaeology from this period in ancient China and India also show evidences of money lending.

Many scholars trace the historical roots of the modern banking system to medieval and Renaissance Italy, particularly the affluent cities of Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. 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, Italy, 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, Italy, which had been operating since 1463.

Development of banking spread from northern Italy throughout the Holy Roman Empire, and in the 15th and 16th century to northern Europe. This was followed by a number of important innovations that took place in Amsterdam during the Dutch Republic 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 2008 financial crisis led to 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, 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, 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.

Anatolian 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 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 and silver.

Record-keeping

Objects used for record keeping, " bulla" 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 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, 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, 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 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 Antiochus III 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 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, silver, or other property must present all articles and a signed contract 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 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 apparently took part in providing credit (Moshenskyi 2008).

Asia Minor

From the fourth millennium 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 Antony 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 (321–185 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

In ancient China, starting in the Qin dynasty (221–206 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 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 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, 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 Apollonian temple was built before the end of the 7th century BCE. A treasury of the temple was constructed by the city of Siphnos 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 in 454.

During the late 3rd and 2nd century BCE, the Aegean island of Delos became a prominent banking center. In the 2nd century, there were for certain three banks and one temple depository within the city.

Thirty-five Hellenistic 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, Corinth 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, translated from Latin as "God will trap you".

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 inherited the mercantile practices from Greece (Parker).

In 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 in 325 BCE when, on account of being in debt, the Plebeians 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 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 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 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 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. With the decrease in economic activity after the fall of Rome and Islamic invasions, banking likely temporarily ended in Europe and was not revived until Mediterranean trade commenced again in the 12th century.

Religious restrictions on interest

All early religious systems in the ancient Near East, and the secular codes arising from them, were strict on this practice being forbidden usury. 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 Mesopotamians, Hittites, Phoenicians and Egyptians, interest was legal and often fixed by the state.

Judaism

The Torah and later sections of the Hebrew Bible

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