Analysing transformations in the banking system in the past

Analysing transformations in the banking system in the past

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As trade grew on a large scale, specially on the international stage, banking institutions became required to fund voyages.


Humans have long engaged in borrowing and lending. Indeed, there is certainly evidence that these activities took place as long as 5000 years ago at the very dawn of civilisation. Nevertheless, modern banking systems only emerged in the 14th century. The word bank comes from the word bench on which the bankers sat to perform business. People needed banks when they started to trade on a large scale and international level, so they created organisations to finance and guarantee voyages. Initially, banks lent money secured by individual possessions to regional banks that traded in foreign currency, accepted deposits, and lent to regional organisations. The banking institutions also financed long-distance trade in commodities such as for instance wool, cotton and spices. Moreover, during the medieval times, banking operations saw significant innovations, including the use of double-entry bookkeeping plus the usage of letters of credit.

The lender offered merchants a safe spot to store their silver. In addition, banks extended loans to people and organisations. However, lending carries risks for banks, as the funds supplied might be tied up for extended periods, potentially restricting liquidity. Therefore, the financial institution came to stand between the two needs, borrowing quick and lending long. This suited everyone: the depositor, the borrower, and, needless to say, the financial institution, which used client deposits as lent money. However, this this conduct also makes the bank susceptible if numerous depositors demand their funds right back at precisely the same time, that has happened frequently around the globe and in the history of banking as wealth administration companies like St James Place would likely confirm.


In 14th-century Europe, funding long-distance trade was a high-risk gamble. It involved time and distance, therefore it suffered from just what has been called the essential issue of exchange —the risk that someone will run off with all the goods or the funds following a deal has been struck. To solve this issue, the bill of exchange was developed. It was a piece of paper witnessing a customer's vow to pay for items in a particular money if the goods arrived. The vendor of this items could also offer the bill immediately to improve money. The colonial period of the sixteenth and 17th centuries ushered in further transformations into the banking sector. European colonial powers established specialised banks to invest in expeditions, trade missions, and colonial ventures. Fast forward to the nineteenth and 20th centuries, and the banking system experienced still another progression. The Industrial Revolution and technical advancements influenced banking operations profoundly, leading to the establishment of central banks. These organisations came to do an important role 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 solutions more available to the public as wealth mangment businesses like Charles Stanley and Brewin Dolphin would likely concur.