History and Origin of Banks in the World

History and Origin of Banks in the World

Every concept has its origin, and banks are no different. History traces the idea of banking as far back as 1,800BC. Although any form of banking at the time would not have been half as sophisticated as it is in our time, it still met the basic needs of the people in terms of safekeeping their valuables.

From a system of trade by barter to the exchange of coins and the role of money lenders, the banking system has gone through various cycles of development to get to where it is today. This article will take you through these cycles, as well as highlight famous global events that have had an impact on the banking world.

History of Early Banking in the World
The term ‘bank’ is said to have originated from the word ‘Banque’ in French, or ‘Banca’, an Italian word. Both seem to mean one thing — a bench. European moneylenders were known for sitting on tables, and benches where they kept heaps of coins to exchange and lend them to the public.

Babylon, Assyria and Egypt saw some of the earliest forms of banking in 1800 BC. It is said that the Code of Hammurabi, one of the oldest historical writings, contained elements of contract, loans, interests and guarantees.

Temple Era

Temples were known for housing some of the most valuable items people owned. Little wonder, temples were usually a major hit target during wars and conquests. People trusted the priests, and since they barely had places to store their coins in their homes, they left them in the care of the priests.

With time, the priests began to loan deposited money out, and soon became significant players in the finances of the cities. While temples handled the major loans, other merchant money lenders existed as well. Soon enough, the Romans replaced the temple system.

The Roman Empire
The Romans took banking away from the temples, and into buildings set apart for it. It became a known trade as moneylenders accepted deposits and made loans. They were also responsible for changing money into various currencies.

Moneylenders had rights that were backed by Roman laws. Julius Ceaser, while amending the Roman law, gave power to moneylenders to confiscate the lands of those who defaulted in the payment of their loans. However, following the fall of the Roman Empire, the Roman banking system went into the shadows.

European Era

Banking activities were revived in the 12th and 13th centuries in the Italian cities of Florence, Venice and Genoa. It is said that Florence alone had up to eighty bankers at one time, although there were no public banks. Italy produced some of the seasoned bankers of its time, such as Medici, Bardi, Peruzzi and Pitti, who went on to spread the money lending business to other parts of Europe.

The expansion of banking institutions piqued the interest of royal powers, who began to borrow heavily from bankers, to cover the expenses incurred when they went to war. The Bank of Venice, often referred to as the first bank in the world, was set up in 1157 to fund the king’s wars. Phillips II of Spain caused the first (second, third, and fourth) world’s national bankruptcy because he had accrued so many debts, that 40% of the nation’s GNP went into the repayment of loans.

As trading activities evolved, merchant bankers began to use bills of exchange to trade at local and international levels. In the 16th century, innovations took place in Amsterdam that led to the use of charges to deposit money with bankers. This soon spread to the UK, and Britain became a major influencer in the history of banking.

In 1694, the Bank of England was established, and by 1833, joint stock banking began to develop. The 18th century saw the use of pre-printed cheques, and overdrafts and the modern banking system began to develop in the 19th century. Records show that UK banks make up five out of 10 oldest surviving banks in the world, and at the top of the list, is Italy’s Banca Monte Dei Paschi di Siena, founded in 1472, and still in existence today.

Some Notable Events in Banking

# Bank Panic of 1907
As there was no national banking system at the time, merchant bankers were the major financial powers when the Bank Panic hit in 1907. The plummet in the shares and stock sell-offs led to a panic that J.P Morgan, a merchant banker, had to devise means to put off personally. Thankfully, he saved the day; however, the US Government established its Federal Reserve in 1913, to prepare for any reoccurrence.

# The Great Depression (1930)
Over 9000 banks failed within the first 10 months of 1930 in what was known as the Great Depression. This was a result of a crash in the stock market in 1929, caused by a fall in the market, and unpaid debts. It is believed that the Great Depression was one of the contributory factors to World War II.

# World War II
As billions of dollars were needed to fund the war, banks went into mergers, to meet the target. These banks had a wide reach across global markets. The International Monetary Fund (IMF) and the World Bank were created, to help rebuild national economies at the end of the war.