Hello!
I hope you would be fine and in good health. The topic of my blog is about the bank and its evolution. Well, I know that you would have known about what is bank or banking? I'm going to cover some of the aspect of the banking you don't know about.
What is a bank?
You know that bank is an institution that accepts credit in order so it can lend loans to others. Bank has also further types like a central bank, commercial bank, agricultural bank and industrial bank all of those I'm sure that you do know. The function of a commercial bank is accepting a loan, granting a loan, allowing the customer the use of cheques, discounting the bills and allowing the foreign transaction.
Here is the definition of the bank as per Wikipedia:
"A banking is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets."
Evolution of Bank
You and I we both know that bank has not been formed over a night. The origin of the bank is traced to Italy. Word 'Bank' does not trace back to Italy, it is traced back to Germany.
It has been derived from the German word 'Banck' which means a mound or a heap. From the word 'Banck' Italians adopted the word 'Banco' which means a bench on which money exchange one type of money with another type of money and in this way transact their money business.
The bank of Venice which is considered as the first bank established in the entire history, but it was not exactly as today's banking system. The real function of bank started from the 15th century, while the bank of Barcelona and bank of Genoa were established in 1401 and 1407 respectively.
Today's banking system as you and I we both know is working with two parties merchants and goldsmith.
Merchants:
In the past merchant were high status and wealthy people, not only this but they were also considered as trustworthy because of their family name and their reputation. You know even today it is true that people who are from well-known family and reputable one are considered to be trustworthy.
Due to their trustworthiness people, they started to lend money to people on the interest basis. In the 14th century when more banks were starting to form Italians merchant shifted to England and started a business of lending business on the interest basis. Even king used to borrow money from them.
As their business expanded, they started to give written acknowledgment to people which enable them to withdraw money from them. today's 'bank draft' is the modern shape of that acknowledgment.
Goldsmith:
You must know that even today goldsmith is considered to be the trustworthy people. Even in the old days, they were also considered as the trustworthy and honest people. They were financially strong and had iron safes for their valuable things. People started to give them their gold and silver to keep it safe.
In this way, all the deposit were kept safe with goldsmith and people were requesting loans from them. Goldsmiths thought that it is profitable to lend. So they began to give interest on deposits. After sometimes they issued written permission to the people in favor of their deposits to get their money and valuable back.
These receipts started passing from hand to hand settlement of different transactions with full acceptance. It was then as to now as a cheque in our modern age.
Early modern age banking:
The development of banking in England is traced to the goldsmiths who became prominent after the middle of 17th century. Yet the credit for laying the foundation of modern banking in England inevitably goes to the Lombard of Italy who had migrated to other European countries including England. As money lending developed in London. Although the bank of England was established in the leading world countries only in the 19th century.
The function of modern commercial banks are numerous and overlap with those of such other financial institutions as saving a bank, finance companies, and investment trusts. But they are most sharply differentiated from other financial institutions by the charter of their principal liabilities.
Only commercial banks hold demand deposit, which constitutes the most important component money supply. The bank is unique among non-governmental institutions as administrators of demand deposits and as money issuers. They influence not only the size of the money stock but also the allocation of funds and thus the direction and use of resources within the system as a whole.
The extraordinary capacity of the commercial banks to create new money sale of investment holdings places upon them grave responsibility with respect to the expansion and contraction of business activity. The banks are in fact "the heart and center of the modern currency system".
Conclusion:
It was all that was there about the history of the bank. I hope I have cleared your concept of banking. If I did miss something or something that you didn't get to send me a message for it.
