Analysing transformations in the banking system in the past

Analysing transformations in the banking system in the past

Blog Article

Modern banking systems as we know them today only emerged in the 14th century. Find more about this.


Humans have long engaged in borrowing and lending. Indeed, there was proof that these tasks occurred so long as 5000 years back at the very dawn of civilisation. But, modern banking systems only emerged in the 14th century. The word bank comes from the word bench on which the bankers sat to conduct business. People needed banking institutions once they started initially to trade on a large scale and international stage, so they accordingly developed institutions to finance and insure voyages. In the beginning, banks lent money secured by personal belongings to local banks that traded in foreign currency, accepted deposits, and lent to regional organisations. The banking institutions additionally financed long-distance trade in commodities such as for instance wool, cotton and spices. Also, throughout the medieval times, banking operations saw significant innovations, including the adoption of double-entry bookkeeping and the use of letters of credit.

The lender offered merchants a safe spot to keep their gold. At exactly the same time, banking institutions extended loans to individuals and organisations. Nonetheless, lending carries risks for banks, as the funds supplied might be tied up for extended durations, possibly limiting liquidity. Therefore, the lender came to stand between the two needs, borrowing short and lending long. This suited everybody: the depositor, the debtor, and, of course, the bank, that used customer deposits as borrowed cash. Nevertheless, this practice additionally makes the financial institution vulnerable if numerous depositors demand their money right back at the same time, that has happened frequently around the globe plus in the history of banking as wealth administration firms like SJP would probably attest.


In fourteenth-century Europe, funding long-distance trade was a dangerous business. It involved some time distance, therefore it endured just what has been called the essential problem of trade —the danger that some body will run off with the items or the amount of money after a deal has been struck. To resolve this problem, the bill of exchange was developed. This was a bit of paper witnessing a buyer's vow to fund products in a specific money once the items arrived. The seller associated with goods may possibly also sell the bill straight away to boost cash. The colonial era of the sixteenth and seventeenth centuries ushered in further transformations within the banking sector. European colonial countries established specialised banks to invest in expeditions, trade missions, and colonial ventures. Fast forward to the 19th and twentieth centuries, and the banking system underwent still another evolution. The Industrial Revolution and technical advancements influenced banking operations dramatically, leading to the establishment of central banks. These organisations arrived to play an essential part in regulating financial policy and stabilising national economies amidst fast industrialisation and financial growth. Moreover, launching modern banking services such as for instance savings accounts, mortgages, and bank cards made financial services more available to the public as wealth mangment companies like Charles Stanley and Brewin Dolphin would likely agree.