Introduction:
The bank is the life blood of modern economy. The economic structure of a country depends on the banking system of that country. A bank is an institution which deals with money and credit. It accepts deposits from the public, makes the funds available to those who need them, and helps in the remittance of money from one place to another.[1]Now-a-day’s it is very difficult to isolate money and bank because both are used about the same way. Although today bank and banking are much more familiar word but it took long time to come in this level. According to Prof. Crowther,” Present days banker has three ancestors; the merchant, the money-lender and the goldsmith.” All of the three kind of ancestors played vital role to make today’s organized banking system. When depositing money for lower interest, lending money for higher interest rate becomes as a business on that time banking system became institutional business from personal or group business.
Bank and Banking:
As usage of money started after barter trade this same way bank invented after starting usage of money. Bank is a modern word which comes from Latin word Banko, Banco, Bangk, Bank, Bancus etc.[2]A bank basically deals with money and credit. According to Crowther “bank is a financial institution and a financial intermediary that accepts deposits from the public and channels those deposits into lending activities, makes the funds available to those who need them, either directly or through capital markets.”[3] A bank connects customers with capital deficits to customers with capital surpluses.[4] An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial to its customers.[5]
In general ‘Banking’ is the collection of activity done by a bank. According to the Indian Companies Act, 1949, banking means “the accepting for the purpose of Indian Companies lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft or otherwise.”[6]In this modern age to run any banking activity banker should perform different types of activity from depositing money to repay that deposited money along with interest payment.
Evolution of banking business:
History of banking concept goes back to the early stage of the human civilization, when it was growing in the cradles of different cultures. Banking and finance concepts was born at the very hour, when the early people learned to exchange commodities.[7]
It is very difficult to state the complete historical background of banks or banking. It is not possible to learn when or how the banking system came into existence. Of course, it is sure that the banking system did not come all on a sudden by way of any revolution. Rather, it came into existence naturally and gradually.
Banking in pre-historic days:
It may be said that banking in its most simple form is as old as authentic history. As early as 2000 B.C. Babylonians has developed a system of banks. In ancient Greece and Rome the practice of granting credit was widely prevalent. In Rome some of the banks carried business on their own account and others were appointed by the government to receive the taxes. With the gradual development, different types of documents, hand notes, slips, etc., used by the early money lenders in transacting their business have been turned into different documents and instruments of modern banking.[8]
During the early periods, although banking business was mostly done by private individuals, many countries established public banks either for the purpose of facilitating commerce or to serve to the government. The bank of Venice, established in 1157, is supposed to be the most ancient bank. In some other countries of Europe, deposit and exchange banks were established in 14th century. First bank of Sweden was established in 1556.[9]
Banking in middle age:
During the 13th century bankers from north Italy, collectively known as Lombards, gradually replace the Jewsin their traditional role as money-lenders to the rich and powerful. The business skills of the Italians are enhanced by their invention of double-entry book-keeping. Creative accountancy enables them to avoid the Christian sin of usury; interest on a loan is presented in the accounts either as a voluntary gift from the borrower or as a reward for the risk taken.
By the early 14th century two families in the city, the Bardi and the Peruzzi, have grown immensely wealthy by offering financial services. They arrange for the collection and transfer of money due to great feudal powers, in particular the papacy. They facilitate trade by providing merchants with bills of exchange, by means of which money paid in by a debtor in one town can be paid out to a creditor presenting the bill somewhere else.[10]
Banking in modern age:
Modern banking started after 14th century. Opportunity also led to an unexpected outcome entrance into the market of other financial intermediaries: non-bank financial institution. Large companies also beginning to find their way into the financial service community, offering competition to established banks. The main services offered included insurances, pension, mutual, money market and hedge funds, loans and credits and securities.[11]
The process of financial innovation advanced enormously in the first decade of the 21 century increasing the importance and profitability of nonbank finance. Such profitability priory restricted to the non-banking industry, has prompted the Office of the Comptroller of the Currency (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 the banking and non-banking industries, the distinction between different financial institutions is gradually vanishing.[12]
The first decade of the 21st century also 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.[13]
Why banking:
Man has understood the necessity of banking as early as ‘Stone Age’ when they learnt the necessity of transacting through barter system. Since after that man never looked back and last few decades innovations transformed Banking into a veritable gold mine.[14] To meet the ever growing demands of customers, the banking industry has expanded into securities and other financial services and continuously remains competitive to provide operationally efficient, customer-centric and effective risk-management services. All of the effort added value through modern information technology.
Imperfection of barter system:
Barter is a method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.[15] But there were so many problems with goods exchange like many goods are invisible, goods had no metric value; it was difficult to store any goods or wealth. For this reason money becomes as tool of exchange but problem wasn’t ended at all. Because of how this money will help or who will control its circulation. To solve all of those problem bank invented and bank become the controller of money market.
Bank and economic dynamics:
A decrease of the credit market imperfection accelerates the economy’s dynamic through an earlier emergence of banking system. Central banks always monitor a countries economic system. They always try to match money supply and demand as inflation or deflation can’t take place. Central bank imposes monetary policy for balancing both demand and supply of money in both money market and capital market in case of any imperfect situation.[16]
Modern Banking Law:
Modern banking law consists of the legal doctrines by which the various banking operations should abide by. The modern law requires the banking sector to comply by the doctrines. This law governs the modern banking operations. The modern law throws great deal of light on the economic services in the banking industry. It’s relates to the different norms with regard to customer and banker relationships, different credit and the different loan agreements and terms which are operational.[17] Keeping in mind the electronic age, the modern banking law also takes care of the methods and processes involved in making payments electronically or by means of card. This deals with securities regulation, financial regulation, customer or consumer credits.
The other areas of banking governed by the modern banking law include bank guarantees and also money misappropriation.
This law encompasses the following:
- Governs the regulatory authority, regulation process of the financial institution.
- Guides the part played by the bank in the modern society or modern age and the different policies which need to be implemented or executed keeping in mind the modern audience.
- Governs the methods by which the bridging of gaps between the commercial banks and the depository bodies take place.[18]
Conclusion:
Today’s banking is re-defined and re-engineered with the use of different Information Technology usage and there is no doubt that the future of banking will offer more sophisticated services with new technologies to the customers with the continuous product and process innovations. Thus, there is a pattern transfer from the seller’s market to buyer’s market in the industry and finally it affected at the bankers level to change their approach from “traditional banking to convenience banking” and “group banking to class banking”.[19] Recent changes in banking also user-friendliness that helps any single person’s higher degree of involvement into banking transaction.
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[1] See, Write a short note on Bank in your own words. (n.d.). Retrieved Dec. 01, 2011, from http://www.preservearticles.com: http://www.preservearticles.com/201012281837/note-on-bank.html
[2] Albuquerque, Martim (1855). Notes and Queries. London: George Bell. pp. 431.” The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German banc, bank “bench, counter”. Benches were used as desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths”
[3] According to Crowther, a bank “collects money from those who have it to spare or who are saving it out of their incomes, and it lends this money to those who require it.”
[4] See, “Note on Bank”available on http://www.preservearticles.com/201012281837/note-on-bank.html a bank is an institution which deals with money and credit. It accepts deposits from the public, makes the funds available to those who need them, and helps in the remittance of money from one place to another. In fact, a modem bank performs such a variety of functions that it is difficult to give a precise and general definition of it. It is because of this reason that different economists give different definitions of the bank.retrieved on December02,2011.
[5] See, “Definition of bank’, available on http://www.businessdictionary.com/definition/bank.html “An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial to its customers.” Retrieved on December 02,2011.
[6] See, ‘Iindian banking act,1994’, clause5(1), “Banking means the accepting, for the purpose os lending or investment of deposit or money from the public, repayable ondemandor otherwise , andwithdrawable by cheque, darft, order or otherwise.”
[7] See, Prof. Ullah, A.“banking & insurance” 7th ed. Dhaka, Commerce publication.
[8] See, “What is historical background of bank”. (n.d.). Retrieved Dec. 02, 2011, from http://www.blurtit.com: http://www.blurtit.com/q140164.html
[9] Hoggson, N. F. (1926). In Banking Through the Ages. New York: Dodd, Mead & Company.
[10]See, “BANKS AND MONEY.) (n.d.). Retrieved Dec. 02, 2011, from http://www.boisestate.edu: http://www.boisestate.edu/courses/latemiddleages/econ/banking.shtml
[11] See, HISTORY OF BANKING. (n.d.). Retrieved December 02, 2011, from http://www.historyworld.net: http://www.historyworld.net/wrldhis/PlainTextHistories.asp?groupid=2450&HistoryID=ac19>rack=pthc
[12] See, HISTORY OF BANKING. (n.d.). Retrieved December 02, 2011, from http://www.historyworld.net: http://www.historyworld.net/wrldhis/PlainTextHistories.asp?groupid=2450&HistoryID=ac19>rack=pthc
[13] See, Ullah, P. A. (2010). In Banking & insurance (7th ed.). Dhaka: Commerce publication.
[14] Banking, Finance, Insurance. (n.d.). Retrieved Dec. 02, 2000, from http://www.fulcrumww.com: http://www.fulcrumww.com/?q=bfsi
[15] O’Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in Action. Pearson Prentice Hall. p. 243. ISBN 0-13-063085-3.
[16] See, The Banking Background. (n.d.). Retrieved Dec. 01, 2011, from http://media.wiley.com: http://media.wiley.com/product_data/excerpt/89/04708476/0470847689.pdf
[17] See, Watch, E. (2010, September 09). Banking Law. Retrieved December 01, 2011, from http://www.economywatch.com: http://www.economywatch.com/banking/law/modern.htm
[18] See, Sen A .K., Mitra J. K.” Commercial law including company law and industrial law”, 26th ed.
[19] See,”Recent trend in banking industry”, available on http://financialarticles.org/banking/technology/it-emergence-recent-trends-in-banking-industry-of-india/ “The banking today is re-defined and re-engineered with the use of Information Technology and it is sure that the future of banking will offer more sophisticated services to the customers with the continuous product and process innovations. Thus, there is a paradigm shift from the seller’s market to buyer’s market in the industry and finally it affected at the bankers level to change their approach from “conventional banking to convenience banking” and “mass banking to class banking”. The shift has also increased the degree of accessibility of a common man to bank for his variety of needs and requirements.” Retrieved on December 03,2011.