Emergence of Banking concept in the world and its background – explain and illustrate in the world wide aspect?

 1. Introduction

A bank which belongs to financial activities is a financial institution and act as a financial intermediary which accepts deposits and savings those deposits launch lending activities, either directly or through capital markets. A bank communicates customers with capital deficits to customers with capital surpluses.

Banking is basically highly regulated organization, and restriction of government on their financial activities varies from location to location and also time to time. In some countries such as Germany, banks have historically owned major stakes in industrial corporations while in other countries such as the United States banks are prohibited from owning non-financial companies.

2. The concept of Banking

The word Bank came from French “banque”, Old Italian “banca” German banc. There are basically two distinct functions in the term of banking.  Those are:

 Deposit banking – a bank which reserves the money from the depositor for their future safekeeping.  Bank issues bank notes, which work as a receipt for their deposit money.  Bank may supply a chaque book for their depositor which regard as open book account.  In any case, savings or deposits of depositor are redeemable on demand to their holder on the accounts.  The actual money (cash – gold or paper) which deposited by the depositor at the bank is not regard as a loan for the bank, but a bailment; the money remains the property of the depositor at all times and the bank may not use the money.

   Loan banking – a bank which provide loan to the borrower from the saved fund of the depositor. This requires capital, either from individuals (as in merchant banking), shareholders, or savers, who have deposited money at the bank not as a simple bailment, but as a loan, which will be loaned out by the bank (hence the money is not available on demand).  The saver receives a return on his savings.[1]

The concept of modern banking, these two distinct concepts has become blurred, and this has tempted bankers to practice what is known as “fractional reserve banking”.  As we shall see, it is plainly fraud, a clear violation of property rights, and yet has been “legal” for well over a century in most countries and is practiced by almost all modern banks.  It is a government-endorsed scam.[2]

  1. A.   Earliest form of Banking or Background

In the ancient period the first banks were the merchants who made loans for farmers and traders which exchange or carry goods between cities. The first records were that type of activity dates back to around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders who were based in temples made loans but also added two important innovations: accepting deposits and changing money. During this period, there is similar evidence of the independent development of lending of money in ancient China and separately in ancient India.[3]

The development of this concept started from Europe and a number of important innovations took place in Amsterdam in the 16th century and in London in the 17th century.  In 20th century, developments in telecommunications and computing resulting in major changes to the way banks operated and allowed them to dramatically increase in size and geographic spread. In the late 2000s there was also some famous bank failure and that’s why they blame the banking regulation.[4] In Egypt, from early times, grain had been used as a form of money in addition to precious metals, and state granaries functioned as banks. When Egypt fell under the rule of a Greek dynasty, the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This sector work as a trade credit system in which payments were effected by one another without money passing. Greece holds further evidence of banking. Greek temples, conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. There is also evidence of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could “cash” the note in another city, saving the client the danger of carting coinage with him on his journey. Gold coin produced by the Roman Imperial Mint. In Ancient Rome moneylenders 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 moneychanger, 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.[5]

  1. B.   Advances in the 17th and 18th century

At the end of 16th century and during the 17th, the traditional bank accepting deposits, money changing, and transferring funds that served as a substitute for gold and silver coins. New banking practices as promoter by providing a safe and convenient means of payment and a money supply for commercial needs, as well as by “discounting” business debt. At the end of17th century, banking was also becoming important for the funding requirements. This would lead first central banks. Goldsmiths are the main developer of the banking, who transformed from simple artisans to becoming depositories of gold and silver holdings. The goldsmiths soon found themselves with money for which they had no immediate use, so they lend the money out at interest to both the merchants and the government. So they discovered that the deposit receipts they provided one person to another in lieu of payment in coin, which prompted them to begin lending paper receipts rather than coins.[6] In 18th-century the Bank of England had a monopoly over corporate banking, and even large partnerships were prohibited. But private banks, though relatively small, personal enterprises, continued to find profitable business in discounting merchants’ bills. In the latter half of the century small banks in country towns grew rapidly in number and needed “correspondent” banks in London with which they could deposit and invest funds.[7]

3. Emergence of banking concept in world wide

At the beginning of the invention of the bank it was not very recognized all over the world. In that time the concept of banking limited to the some region. The main region was included Mesopotamia, Egypt, China, and India etc. Ancient Greece holds further evidence of banking. Greek temples, as well as private and civic entities, conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage.[8]In that time the medium of exchange was basically gold, goods, domestic cattle etc. But gradually the need and expectance of human increasing and the form of exchange also changing. After the invention of money the new revolution in banking sector was happened. In16th and17th century the traditional banking functions of accepting deposits, money lending, money changing, and transferring funds were combined with the issuance of bank debt that served as a substitute for gold and silver coins.[9] The history of banking is closely related to the history of money but banking transactions probably predate the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates.

From then it expand its sector by providing many services. Now days it can help people by providing study, agricultural, Islamic, housing etc.sectors. In these sector it provide there help for expanding and enrich these sector. We can see that different types of banking like sort masses service, online, mobile etc banking. It has been possible only for the medium of different sector as well as the demand of people. People now want to fulfill there need from any part of the world as there need. For there business purpose or different types of need the banking sector has been bound to enhance there capacity as well as for there benefits. As a result it has expand all over the world and also people get there services at home.

4. Conclusion

 From the very beginning merchant, goldsmith and some other community are responsible for the banking system. First of all the goldsmith are playing a vital role for the banking system. When they saw that majority of the money or gold coin gained by them then they try to understand the tendency of general public. They follow that people want to pay some extra benefit and also believe them as money holder. So they took the advantage and lend money to the people but they give some paper as a document. Also they took money from the people as a money holder. As a result they act as a taker as well as safer. After that they lend money against some interest. In this way they work as financial intermediaries. Another thing is the march at also contribute for the banking system. The goldsmiths eventually discovered that the deposit receipts they provided were being passed on from one person to another in lieu of payment in coin, which prompted them to begin lending paper receipts rather than coins. Form then gradually it was spread in some other countries as well as now days all over the world.

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[1] In case of deposit banking, a bank is working merely as a money warehouse, for safely storing money that people are not comfortable storing in their own homes.  The depositor pays some money to the bank as fee for the trouble of storing the money in their vaults.  The bank provides a moderately useful function for the society, but little more than any other warehouse does.

[2] In a libertarian society, fractional reserve banking would be banned.  However, even if the bankers are allowed to get away with it, there are severe limitations on how effectively it can be done in a system of “free banking”.  Free banking refers to a banking system where there is no government involvement, whether or not the practice is treated as fraud.  For this reason, banks and governments allied to gradually remove the market limitations on the practice.  This is the development of central banking.

[3] Banking, in the modern sense of the word, can be traced to medieval and early Renaissance Italy, to the rich cities in the north such as Florence, Venice and Genoa.

 

[4] The history of banking is closely related to the history of money but banking transactions probably predate the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves.

[5] The Roman empire 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.

[6] By promoting acceptance of the receipts as a means of payment, the goldsmiths discovered they could lend more than the gold and silver coin they had on hand, a practice that became known as fractional-reserve banking.

[7] In the late 18th century there was a massive growth in the banking industry. Banks played a key role in moving from gold and silver based coinage to paper money, redeemable against the bank’s holdings. Within the new system of ownership and investment, the state’s role as an economic factor grew substantially.

[8] There is evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could “cash” the note in another city, saving the client the danger of carting coinage with him on his journey.

[9] 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 relatively new and combative european states.