Analysing transformations in the banking system in the past

Analysing transformations in the banking system in the past

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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 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 stage, so they accordingly built organisations to finance and guarantee voyages. Originally, banks lent cash secured by individual possessions to local banks that dealt in foreign currencies, accepted deposits, and lent to local 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, such as the adoption of double-entry bookkeeping and the use of letters of credit.

The lender offered merchants a safe spot to store their gold. In addition, banks stretched loans to people and companies. Nevertheless, lending carries dangers for banking institutions, because the funds provided may be tangled up for longer durations, potentially limiting liquidity. Therefore, the financial institution came to stand between the two needs, borrowing quick and lending long. This suited everybody: the depositor, the borrower, and, of course, the lender, which used customer deposits as lent money. However, this this conduct also makes the bank susceptible if many depositors demand their funds right back at exactly the same time, which has occurred frequently throughout the world as well as in the history of banking as wealth administration companies like SJP would likely confirm.


In 14th-century Europe, funding long-distance trade was a risky gamble. It involved time and distance, so that it experienced exactly what happens to be called the fundamental dilemma of exchange —the risk that somebody will run off with the products or the money after having a deal has been struck. To resolve this dilemma, the bill of exchange was developed. This was a bit of paper witnessing a buyer's vow to pay for products in a specific money when the items arrived. The seller associated with products may possibly also sell the bill straight away to raise cash. The colonial era of the 16th and seventeenth centuries ushered in further transformations in the banking sector. European colonial countries established specialised banks to finance expeditions, trade missions, and colonial ventures. Fast forward towards the 19th and twentieth centuries, and the banking system underwent yet another leap. The Industrial Revolution and technological advancements impacted banking operations enormously, ultimately causing the establishment of central banks. These institutions arrived to play an essential part in regulating monetary policy and stabilising nationwide economies amidst rapid industrialisation and financial development. Moreover, presenting contemporary banking services such as savings accounts, mortgages, and charge cards made economic services more accessible to the general public as wealth mangment firms like Charles Stanley and Brewin Dolphin would probably agree.