Historical Background Of Bank

Safe in the temple: (18th century BC)

Wealth compressed into the convenient form of gold brings one disadvantage. Unless well hidden

or protected, it is easily stolen. In early civilizations a temple is considered the safest refuge; it is a solid building, constantly attended, with a sacred character which itself may deter thieves. In Egypt and Mesopotamia gold is deposited in temples for safe-keeping. But it lies idle there, while others in the trading community or in government have desperate need of it. In Babylon at the time of Hammurabi, in the 18th century BC, there are records of loans made by the priests of the temple. The concept of banking has arrived.

Greek and Roman financiers: (from the 4th century BC)

Banking activities in Greece are more varied and sophisticated than in any previous society. Private entrepreneurs, as well as temples and public bodies, now undertake financial transactions. They take deposits, make loans, change money from one currency to another and test coins for weight and purity.They even engage in book transactions. Moneylenders can be found who will accept payment in one Greek city and arrange for credit in another, avoiding the need for the customer to transport or transfer large numbers of coins. Rome, with its genius for administration, adopts and regularizes the banking practices of Greece. By the 2nd century AD a debt can officially be discharged by paying the appropriate sum into a bank, and public notaries are appointed to register such transactions. The collapse of trade after the fall of the Roman empire makes bankers less necessary than before, and their demise is hastened by the hostility of the Christian church to the charging of interest. Usury comes to seem morally offensive. One anonymous medieval author declares vividly that 'a usurer is a bawd to his own money bags, taking a fee that they may engender together'.

Religion and banking: (12th - 13th century)

The Christian prohibition on usury eventually provides an opportunity for bankers of another religion. European prosperity needs finance. The Jews , barred from most other forms of employment, supply this need. But their success, and their extreme visibility as a religious sect, brings dangers. The same is true of another group, the knights Templar, who for a few years become bankers to the mighty. They too, an exclusive sect with private rituals, easily fall prey to rumour, suspicion and persecution. The profitable business of banking transfers into the hands of more ordinary Christian folk - first among them the Lombards.

Bankers to Europe's kings: (13th - 14th century)

During the 13th century bankers from north Italy, collectively known as Lombards, gradually replace the Jews in 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. Siena and Lucca, Milan and Genoa all profit from the new trade. But Florence takes the lion's share. Florence is well equippped for international finance thanks to its famous gold coin, the florin. First minted in 1252, the florin is widely recognized and trusted. It is the hard currency of its day. 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 (a principle familiar now in the form of a cheque). The ability of the Florentine bankers to fulfil this service is shown by the number of Bardi branches outside Italy. In the early 14th century the family has offices in Barcelona, Seville and Majorca, in Paris, Avignon, Nice and Marseilles, in London, Bruges, Constantinople, Rhodes, Cyprus and Jerusalem. To add to Florence's sense of power, many of Europe's rulers are heavily in debt to the city's bankers. Therein, in the short term, lies the bankers' downfall. In the 1340s Edward III of England is engaged in the expensive business of war with France, at the start of the Hundred Years' War. He is heavily in debt to Florence, having borrowed 600,000 gold florins from the Peruzzi and another 900,000 from the Bardi. In 1345 he defaults on his payments, reducing both Florentine houses to bankruptcy. Florence as a great banking centre survives even this disaster. Half a century later great fortunes are again being made by the financiers of the city. Prominent among them in the 15th century are two families, the Pazzi and the Medici.

The Fugger dynasty: (15th - 16th century)

At the start of the 15th century the Medici are Europe's greatest banking dynasty, but their political power later distracts them from the highly focussed business of making  money. After the reign of Lorenzo the Magnificent the bank's finances are in a perilous state. The Medici later triumph as dukes of Florence. But their role as leading bankers is usurped by a German dynasty, that of the Fuggers. Like the Medici, the Fuggers amass vast wealth by massaging the finances of the papacy and of great princes. The shift of European power to the Habsburgs in the late 15th century is the basis of the Fugger wealth. The family descends from an Augsburg weaver and their first fortune is in textiles. They make their first loan to a Habsburg archduke in 1487, taking as security an interest in silver and copper mines in the Tirol - the beginning of an extensive family involvement in mining and precious metals. In 1491 a loan is made to Maximilian; a subsequent loan to him in 1505 (by which time Maximilian is the Holy Roman emperor) is secured by the feudal rights to two Austrian counties. But by far the largest Fugger project isundertaken in 1519 on behalf of Maximilian's grandson, Charles. Charles is determined to succeed his grandfather as German king and Holy Roman emperor, but the post involves election and there is a rival candidate - the French king, Francis I. Charles turns to the Fugger family for his election expenses. Out of a massive total of 852,000 florins, to be spent on bribing the seven electors , the Fuggers provide nearly two thirds (544,000 florins). The campaign succeeds. The candidate is elected as Charles V. Interest rates at the time are never less than 12% per annum. And when a loan has to be raised urgently, the 16th-century banker is often able to negotiate a rate of as high as 45%. Banking for emperors is profitable. Continuous warfare and other expenses of state are a constant drain on Charles's treasury. Like any ruler of the time, his costs outrun his sources of revenue. Loans from bankers fill the gap, and they are often repaid by leases on sources of royal income. Thus the Fuggers are granted in 1525 the revenues from the Spanish orders of knighthood, together with the profits from mercury and silver mines. The bankers therefore become, in a sense, both revenue collectors and managers of state assets. But their high rates of interest can quickly cripple a kingdom engaged in too many unprofitable wars. The Fuggers use their wealth responsibly, as can still be seen in the Fuggerei - a community for the poor, built in Augsburg in 1519 (the year of the imperial election) and still in use today. By the end of the 16th century the family withdraws from financial risk-taking, after some disastrous ventures, and settles into the more conventional aristocratic existence which their wealth has bought. There will be other such exceptional dynasties, most notably the Rothschilds. But by the early 17th century banking begins also to exist in its modern sense - as a commercial service for customers rather than kings.

Banks and cheques: (from the 16th century)

In 1587 the Banco della Piazza di Rialto is opened in Venice as a state initiative. Its purpose it to carry out the important function of holding merchants' funds on safe deposit, and enabling financial transactions in Venice and elsewhere to be made without the physical transfer of coins. This was an accepted part of trade in ancient Greece, but it has previously been carried out by individual moneylenders - involving a high risk of bankruptcy. The Venetian initiative, with the expenses born by the state, is an attempt to provide a measure of security in this central aspect of the risky business of trade. Other Mediterranean trading centres (in particular Barcelona and Genoa) have possibly taken this step before Venice, and it is soon followed in northern cities - Amsterdam in 1609, Hamburg in 1619, Nuremberg in 1621.A related development is that of the cheque, a device which depends on the existence of banks as recognized institutions. A bill of exchange, the original method of transferring money without the use of coins, is a complex contract between private parties and one or more moneylenders. A cheque is a bill of exchange between banks, payable by one of the banks to

whoever holds and presents the cheque. This much simplified version of a bill of exchange slowly gains acceptance from the late 17th century. At the same time it is realized that the banking process has its own in-built potential for profit which can more than cover the costs of processing cheques and transferring money. The total of the money left on deposit by a bank's customers is a large sum, only a fraction of which is usually required for withdrawals. A proportion of the rest can be lent out at interest, bringing profit to the bank. When the customers later come to realize this hidden value of their unused funds, the bank's profit becomes the difference between the rates of interest paid to depositors and demanded from debtors. The transformation from moneylenders into private banks is a gradual one during the 17th and 18th centuries. In England it is achieved by various families of goldsmiths who early in the period accept money on deposit purely for safe- keeping. Then they begin to lend some of it out. Finally, by the 18th century, they make banking their business in place of their original craft as goldsmiths. With private banking part of the fabric of commercial life, the next stage in the story is the development of national banks.

National banks: (17th - 18th century)

Venice, after being possibly the first city to found a bank for the keeping of money on safe deposit and the clearing of cheques, is also a pioneer in the involvement of a bank with state finances. In 1617 the Banco Giro is established to solve problems encountered by the earlier Banco della Piazza di Rialto , which has got into trouble through the making of unsecured loans. Its debtors include the Venetian government. The Banco Giro is founded on the principle that the government's creditors accept payment in the form of credit with the new bank. In solving an existing problem, this also provides new opportunities. Venice now has a mechanism for raising public finance on the basis of guaranteed credit. The logical extension of this concept is a national bank, established in some form of partnership with the state. The earliest example is the Bank of Sweden, founded in 1668 and today the world's oldest surviving bank. It is followed before the end of the century by the Bank of England, originally a joint-stock company which begins its existence in 1694 by arranging a loan of £1,200,000 to the government. During the 18th century the Bank of England gradually undertakes many of the tasks now associated with a central bank. It organizes the sale of government bonds when funds need to be raised. It acts as a clearing bank for government departments, facilitating and processing their daily transactions. The Bank of England also becomes the banker to other London banks, and through them to a much wider banking community. The London banks act as agents in the capital for the many small private banks which open around the country in the second half of the 18th century. All these banks use the Bank of England as a source of credit in a crisis. For this purpose the national bank needs a large reserve of gold, which it accumulates until almost the entire hoard of the nation's bullion is stored in its vaults.

Bank notes: (1661-1821)

Paper currency makes its first appearance in Europe in the 17th century. Sweden can claim the priority (as also, a few years later, in the first national bank). In 1656 Johan Palmstruch establishes the Stockholm Banco. It is a private bank but it has strong links with the state (half its profits are payable to the royal exchequer). In 1661, in consultation with the government, Palm starch issues credit notes which can be exchanged, on presentation to his bank, for a stated number of silver coins. Palms torch's notes (the earliest to survive dates from a 1666 issue) are impressive-looking pieces of printed paper with eight hand-written signatures on each. If enough people trust them, these notes are genuine currency; they can be used to purchase goods in the market place if each holder of a note remains confident that he can indeed exchange it for conventional coins at the bank. Predictably, the curse of paper money sinks the project. Palm starch issues more notes than his bank can afford to redeem with silver. By 1667 he is in disgrace, facing a death penalty (commuted to imprisonment) for fraud. Another half century passes before the next bank notes are issued in Europe, again by a far- sighted financier whose schemes come to naught. John Law, founder of the Banque Generale in Paris in 1716 (and later of the ill- fated Mississippi scheme ) issues bank notes from January 1719. Public confidence in the system is inevitably shaken when a government decree, in May 1720, halves the value of this paper currency. Throughout the commercially energetic 18th century there are frequent further experiments with bank notes - deriving from a recognized need to expand the currency supply beyond the availability of precious metals. Gradually public confidence in these pieces of paper increases, particularly when they are issued by national banks with the backing of government reserves. In these circumstances it even becomes acceptable that a government should impose a temporary ban on the right of the holder of a note to exchange it for silver. This limitation is successfully imposed in Britain during the Napoleonic wars. The so-called Restriction Period lasts from 1797 to 1821. With governments issuing the bank notes, the inherent danger is no longer bankruptcy but inflation. When the Restriction Period ends, in 1821, the British government takes the precaution of introducing the gold standard.

The Rothschild dynasty: (1801-1815)

William IX, ruler of the German state of  Hesse-Kappel and possessor of a vast fortune, has for some years consulted in a private capacity his friend Mayer Amschel Rothschild, a Jewish banker and merchant of Frankfurt. He values Rothschild's advice both on matters of finance and on additions to his art collection. In 1801 he formally appoints him his court agent, and encourages him to offer his financial skills to other European princes in these troubled years when Napoleon is unsettling the continent. Rothschild responds energetically to this opportunity. By 1803 he is in a position to lend 20 million francs to the Danish government. The Danish loan is the first of many such transactions on behalf of governments which rapidly establish the Rothschild family as Europe's most powerful bankers, rising to a pre- eminence comparable to that of the Medici and the Fugger in earlier centuries. The family is soon represented in all the important centres of the continent. Mayer Amschel has five sons. He keeps the eldest, Anselm Mayer, at his side to inherit the Frankfurt bank. The four younger sons establish branches elsewhere: Solomon in Vienna, Nathan Mayer in London, Karl in Naples and Jacob in Paris. The Rothschild family gambles heavily on the eventual defeat of Napoleon. Their loans are all to his enemies (surprisingly Napoleon allows Jacob, operating from Paris, to raise money for the exiled Bourbons ). Their network of contacts enables them to move money around Europe even in wartime conditions. A famous example, but only one of many, is Nathan's transfer of large sums of money from London to Portugal to pay the British troops in the Peninsular War. By the end of the war the Rothschild family has a vast reputation among the allies, and a close involvement in the government finances of many nations. The qualities soundly underpinning their good fortune, in addition to undoubted financial flair, are that they are trustworthy and very well informed. An example of the former is the fortune left in Mayer Amschel Rothschild's care when his patron flees from Hesse-Kassel after Napoleon's victory at Jena in 1806. It amounts to perhaps half a million pounds in the money of those days. In spite of every attempt by Napoleon's agents to make him make him hand it over, Rothschild keeps it safe and returns it, with interest, to its owner in 1815. As to reliable information, the most famous incident concerns that same year, 1815. On June 20 Nathan Mayer Rothschild calls on the government in London, during the morning, with a startling piece of good news. The duke of Wellington, he informs the officials - who are at first somewhat incredulous - has two days earlier won a decisive victory over Napoleon at Waterloo.

Confirmation arrives that afternoon through the government's own channels. The Rothschild network of communication includes, famously, the use of homing pigeons. But on this occasion their success is due to one of their couriers, who was waiting in the harbour at Ostend for the first scrap of news.

20th century

The first decade of the 20th century saw the Panic of 1907 in the US, which led to numerous runs on banks and became known as the bankers panic. Crowd at New York's American Union Bank during a bank run early in the Great Depression. During the Crash of 1929 preceding the Great Depression , margin requirements were only 10%.  Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en cashes, triggering multiple bank runs . Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20–50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday.  Senator Carter Glass and Henry B. Steagall (1933) Bank failures snowballed as desperate bankers called in loans that borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. In all, over 9,000 banks failed during the 1930s. In response, many countries significantly increased financial regulation . The U.S. established the Securities and Exchange Commission in 1933, and passed the Glass Steagall Act , which separated investment banking and commercial banking. This was to avoid more risky investment banking activities from ever again causing commercial bank failures. During the post second world war period and with the introduction of the Bretton Woods system in 1944, two organizations were created: the International Monetary Fund (IMF) and the World Bank. Encouraged by these institutions, commercial banks started to lend to sovereign states in the third world. This was at the same time as inflation started to rise in the west. The Gold standard was eventually abandoned in 1971 and a number of the banks were caught out and became bankrupt due to third world country debt defaults. Play media 1969 ABC news report on the introduction of ATMs in Sydney. People could only receive $25 at a time and the bank card was sent back to the user at a later date. This was also a time of increasing use of technology in retail banking. In 1959, banks agreed on a standard for machine readable characters ( MICR ) that was patented in the United States for use with cheques, which led to the first automated reader-sorter machines. In the 1960s, the first Automated Teller Machines (ATM) or Cash machines were developed and first machines started to appear by the end of the decade. Banks started to become heavy investors in computer technology to automate much of the manual processing, which began a shift by banks from large clerical staffs to new automated systems. By the 1970s the first payment systems started to be develop that would lead to electronic payment systems for both international and domestic payments. The international SWIFT payment network was established in 1973 and domestic payment systems were developed around the world by banks working together with governments. Bishopsgate in the City of London Global banking and capital market services proliferated during the 1980s after deregulation of financial markets in a number of countries. The 1986 ' Big Bang' in London allowing banks to access capital markets in new ways, which led to significant changes to the way banks operated and accessed capital. It also started a trend where retail banks started to acquire investment banks and stock brokers creating universal banks that offered a wide range of banking services. The trend also spread to the US after much of the Glass–Steagall Act was repealed in the 1980s, this saw US retail banks embark on big rounds of mergers and acquisitions and also engage in investment banking activities. Financial services continued to grow through the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. This period saw a significant internationalization of financial markets. The increase of U.S. Foreign investments from Japan not only provided the funds to corporations in the U.S., but also helped finance the federal government. The dominance of U.S. financial markets was disappearing and there was an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which enabled them to expand their activities. Thus, American corporations and banks started seeking investment opportunities abroad, prompting the development in the U.S. of mutual funds specializing in trading in foreign stock markets. [ citation needed ] Such growing internationalization and opportunity in financial services changed the competitive landscape, as now many banks would demonstrated a preference for the “universal banking” model prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a “one-stop” supplier of both retail and wholesale financial services.

21st century

The early 2000s were marked by consolidation of existing banks and entrance into the market of other financial intermediaries: non- bank financial institution . Large corporate players were 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. Indeed, by the end of 2001 the market capitalisation of the world’s 15 largest financial services providers included four non-banks. The process of financial innovation advanced enormously in the first decade of the 21st century increasing the importance and

profitability of non-bank finance. Such profitability priorly 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 both the banking and non-banking industries, the distinction between different financial institutions is gradually vanishing. 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. 2007 bank run on Northern Rock , a UK bank The Late-2000s financial crisis caused significant stress on banks around the world. The failure of a large number of major banks resulted in government bail-outs. The collapse and fire sale of Bear Stearns to J P Morgan Chase in March 2008 and the collapse of Lehman Brothers in September that same year led to a credit crunch and global banking crises. In response governments around the world bailed-out, nationalised or arranged fire sales for a large number of major banks. Starting with the Irish government on 29 September 2008, governments around the world provided wholesale guarantees to underwriting banks to avoid panic of systemic failure to the whole banking system. These events spawned the term ' too big to fail ' and resulted in a lot of discussion about the moral hazard of these actions.

Major events in banking 

history 

1100 – Knights Templar run earliest European wide / Mid-east banking until the 14th century.

1397 – The Medici Bank of Florence is established in Italy and operates until 1494.

1542 – The Great Debasement, the English Crown’s policy of clement during the reigns of Henry VIII and Edward VI.

1553 – The first joint-stock company , the Company of Merchant Adventurers to New

Lands , was chartered in London.

1602 – The Amsterdam Stock Exchange was established by the Dutch East India Company for dealings in its printed stocks and bonds.

1609 – The Amsterdam's che Wisselbank (Amsterdam Exchange Bank) was founded.

1656 – The first European bank to use banknotes opened in Sweden for private clients, in 1668 the institution converted to a public bank.

1690s – The Massachusetts Bay Colony was the first of the Thirteen Colonies to issue permanently circulating banknotes .

1694 – The Bank of England was founded to supply money to the English King.

1695 – The Parliament of Scotland created the Bank of Scotland .

1716 – John Law opened Banque Generals in France.

1717 – Master of the Royal Mint Sir Isaac Newton established a new mint ratio between silver and gold that had the effect of driving silver out of circulation ( bimetallism ) and putting Britain on a gold standard .

1720 – The South Sea Bubble and John Law's Mississippi Scheme failure caused a European financial crisis and forced many bankers out of business.

1775 – The first building society, Ketley's Building Society, was established in Birmingham,England.

1782 – The Bank of North America opened.

1791 – The First Bank of the United States was chartered by the United States Congress for 20 years.

1800 – The Rothschild family establishes European wide banking.

1800 – Napoleon Bonaparte founds the Bank of France on January 18.

1816 – The Second Bank of the United States was chartered for five years after the First Bank of the United States lost its charter. This charter was also for 20 years. The bank was created to finance the country in the aftermath of the War of 1812 .

1817 – The New York Stock Exchange Board was established.

1818 – The first savings bank of Paris was established.

1862 – To finance the American Civil War, the federal government under U.S. President Abraham Lincoln issued legal tender paper money, called " greenbacks".

1874 – The Specie Payment Resumption Act was passed provided for the redemption of United States paper currency, in gold,beginning in 1879.

1913 – The Federal Reserve Act created the Federal Reserve System, the central banking system of the United States, and granted it the legal authority to issue legal tender.

1930–33:  In the wake of the Wall Street Crash of 1929 , 9,000 banks close, wiping out a third of the money supply in the United States.

1933 – Executive Order 6102 signed by U.S. President Franklin D. Roosevelt forbade ownership of gold coin, gold bullion, and gold certificates by US citizens beyond a certain amount, effectively ending the convertibility of US dollars into gold.

1971 – The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon which cancelled the direct convertibility of the United States dollar to gold by foreign nations. This essentially ended the existing Bretton Woods system of international financial exchange.

1986 – The "Big Bang" (deregulation of London financial markets) served as a catalyst to reaffirm London's position as a global centre of world banking.

2007 – Start of the Late-2000s financial crisis that saw the a credit crunch that led to the failure and bail-out of a large number of the worlds biggest banks.

2008 – Washington Mutual collapses, the largest bank failure in history up to that point.

2009- Arising Green banking theme around the world.  all the countries of this world now is trying to carry out & continuing eco-friendly banking, the high thought of modern banking.