Banking is one of the oldest industries and banking in the form we know began around 2000 BC. of the ancient world. It started with merchants lending grain to farmers and traders while transporting goods between towns. Since then, the banking industry has evolved from a simplistic system of barter and gift transfers of yesteryear to a modern, complex, globalized, technology-driven, Internet-based electronic banking model. In this article, we will introduce you to the major events and developments in the history of the banking industry.
The history of the bank began around 2000 BC. AD of the ancient world when merchants lent grain to farmers and traders began transporting goods between cities in the regions of Assyria and Babylon. The Code of Hammurabi, dating from around 1772 BC. AD, is one of the oldest deciphered writings of significant length in the world that deals with matters of contract and sets the terms of a transaction. This code also included standardized procedures for the handling of loans, interest and guarantees.
Later, in ancient Greece and during the Roman Empire, temple-based lenders made loans and began to take deposits. Banking in Greece is more varied and sophisticated than in any previous society. They took deposits, made loans, changed money from one currency to another, and tested coins for weight and purity. They are even engaged in book transactions. Loan sharks can be found who will accept payment in one Greek city and arrange credit in another, thus saving the customer from having to carry or transfer a large number of coins.
Banking, in the modern sense, dates back to medieval and early Renaissance Italy, to wealthy northern cities such as Florence, Venice and Genoa. The development of banking spread across Europe and a number of important innovations took place in Amsterdam during the Dutch Republic in the 16th century and in London in the 17th century. Some of the earlier systems that facilitated trade/exchange of goods were the barter system and gift exchanges.
Barter system:
The barter system is an age-old method that has been adopted by people to exchange their services and goods. This system was used for centuries, before the invention of money. People used to exchange goods or services for other goods or services in return. The advantage of barter is that it does not involve money. You can buy an item in exchange for something else that you currently own but don’t want. The barter system was one of the earliest forms of commerce. It facilitated the exchange of goods and services, as money had not been invented at that time. The barter system has been used around the world for centuries. The invention of money did not lead to the end of barter services.
Savings of the gift:
A gift economy (or gift culture) is a society where valuable goods and services are regularly given away without any explicit agreement for immediate or future rewards. Gifts are exchanged according to prevailing informal customs, rather than an explicit exchange of goods or services for money or another commodity. Freebies were prevalent before the advent of market acquisition, but gradually disappeared as societies became more complex. Contrary to popular conception, there is no evidence that societies relied primarily on barter before using silver for trade, instead non-monetary societies operated largely on the principles of the gift and debt economy. When bartering did occur, it was usually between complete strangers.
Banking in the 20th century:
During the 20th century, developments in telecommunications and computing brought about major changes in the operation of banks and allowed them to increase in size and geographic scope. The financial crisis of the late 2000s saw a significant number of bank failures, including some of the largest banks in the world. The following paragraph provides an overview of some developments in the banking industry over the past century:
The 1930s-1960s – The Great Depression:
During the 1929 crash preceding the Great Depression, banking and brokerage firms operated with margin requirements of only ~10%. This meant that brokerage firms lent $9 for every $1 an investor deposited. When the market fell, brokers called in these loans, which could not be repaid. Banks began to fail as debtors defaulted on their debts and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs.
Government guarantees and Federal Reserve banking regulations to prevent such panics have been ineffective or not used. Bank failures have resulted in the loss of billions of dollars in assets. After the panic of 1929, and during the first 10 months of 1930, 744 American banks failed and in total more than 9,000 banks failed during the 1930s. The depression is said to be one of the factors that led World War II and the post-war recovery period saw governments playing a more active and prominent role in the banking industry, which led to increased regulation. In response to these many countries, financial regulation has increased significantly and regulatory bodies have been created to oversee banking operations. In the period following World War II, two organizations were created: the International Monetary Fund (IMF) and the World Bank.
1970s-2000s – Deregulation and globalization:
During the 1970s, there were a number of minor stock market crashes related to regulations put in place after the Great Depression. These crashes led to the deregulation of banking restrictions and the privatization of public financial institutions. Global banking and capital market services proliferated during the 1980s after the deregulation of financial markets in a number of countries. The 1986 “Big Bang” in London allowed banks to access capital markets in new ways, leading to significant changes in the way banks operated and accessed capital.
This period saw a significant internationalization of financial markets. American corporations and banks began to seek investment opportunities abroad, prompting the development in the United States of mutual funds specializing in trading foreign stock markets. Increasing internationalization changed the competitive landscape, as many banks would now operate as much as possible as a “one-stop-shop” provider of retail and wholesale financial services. Financial services continued to grow during the 1980s and 1990s due to a surge in demand from businesses, governments and financial institutions.
Early 21st Century – The Decade of Internet Banking:
The early 2000s were marked by the consolidation of existing banks and the entry into the market of other financial intermediaries: non-banking financial institutions. Large companies have ventured into the financial services community, providing competition to established banks. The main services offered included insurance, retirement, mutuals, monetary and hedge funds, loans and credits and securities.
The process of financial innovation extremely advanced in the first decade of the 21st century, and banks have explored other profitable financial instruments, diversifying the activities of banks, which has had a positive impact on the economic well-being of the banking sector. This decade marked the beginning of an era where the distinction between the different financial institutions, banking and non-banking, is gradually blurring. Advances in technology over the decade have changed the way banks operate from traditional branch banking to internet and online banking.
Financial crisis of the late 2000s:
Subprime mortgage lending to borrowers with poor credit led to a financial crisis in 2007. The crisis originated in the United States, but financial institutions around the world were affected because the banking industry was truly global at that time. the. Many institutions have failed around the world, forcing central banks to take major corrective measures to stabilize the banking system. The financial crisis of the late 2000s caused significant stress on banks around the world. The failure of a large number of large banks led to government bailouts. The global financial crisis has forced governments around the world to reassess their financial regulations.
The banking sector over the past decade:
The impact of the global financial crisis and the terrorist attacks of September 11, 2001 had a huge impact on the banking sector. There have been many changes in the banking industry over the past 10 years. Banks have collected vast amounts of customer, channel, financial and risk data, and the availability of analytical technology has opened up a way to effectively manage and analyze the data. Security, privacy and fraud prevention have become a priority area and many measures have been taken in this regard. The globalization of financial products and services has continued along with efforts to include the unbanked, poor and marginalized. The industry is witnessing the emergence of microfinance, microloans, mobile money and other services aimed at providing emerging and/or poor people with reliable and secure financial resources. Laws have been enacted to ensure greater transparency and accountability. The advent of technology has provided operational flexibility that did not exist in 2001.
Banking Knowledge – Resources
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