The Interesting History of Banking

Today, buying our necessities is quite easy with the use of currency. Since there is already a systematized money circulation process, it is now simple and secure to withdraw and deposit money through banking. Banks are an institution that deals with and provides services concerning money. Through banks, you could now make loans and apply for insurances aside from just withdrawing and saving money. 

Way back in ancient times, where there was no such thing as a monetary system, people exchanged products or services to acquire another product. This system without a medium of exchange is called the Barter system. 

Who would think that humanity would reach such a time where everything is made easy by machinery and technology? We no longer exchange products, for we now buy products using bills and coins, and sometimes through cards—what a great convenience.

The term “bank” was coined from the Italian word “banco,” which means bench. For it was on the bench where the early bank tellers sat as they conduct a business transaction. Historically, before modern-day church and state separation, religious temples were the first banks that ever existed. Before financial institutions or banks were built, temples had both served for the spiritual as well as for financial purposes. It was where the people deposited gold and wealth, as well as valuable commodities.

These temples that served as a banking institution were the temples in ancient civilizations, including Greece, Rome, Egypt, and Mesopotamia. In ancient times, major cities had temples in a central location, so there would be easy access for banking wealth. Also, temples were regarded as the safest place since there were priests as a lookout, and robbers would be afraid to steal from a temple for fear of divine punishment.

As the banking system became advanced and more systematized, benches were turned to institutions. In the year 1397, Giovanni de Bicci de Medici built a banking institution called the Medici Bank in Italy. This early banking institution had developed the double-entry booking system and the general ledger system. These systems have tracked the credits and debits and the withdrawals and deposits which have contributed to today’s accounting.

The Medicis were not only bankers but also innovators of financial accounting. They had gained the status of being a respectable upper-class family that had managed great fortunes from the royal class to merchants. Also, they even issued the ‘florin’ that had been the accepted and preferred currency in conducting business and trade. A florin is a Florentine coin used as currency in 1252 up to the year 1533. It is a coin made of pure or fine gold with an estimated value of about 140 to 1000 modern US dollars. 

Aside from the Medici family, some notable banking institutions had arisen in the earlier centuries. Some of these were the Bardi and Peruzzi family that also offered financial services in the 1300s. These two banking institutions faced bankruptcy in the early 14th century caused by the unpaid debt of King Edward III of England. 

In the 15th century, the Medici bank faced its demise under the management of Piero di Lorenzo. He was the twenty-year-old son of the former Medici bank owner, Lorenzo il Magnifico. Due to Piero’s mismanagement and lack of talent in running a bank, Medici bank faced economic troubles as well as bankruptcy in the year 1494.

In the 17th century, goldsmith banking became a business that emerged from the goldsmiths in London. 

In the year 1642, the civil war and the seizure of the mint became the reason why many people seek goldsmiths for the safety of their jewelry, golds, and silver. So, instead of forging coins and objects, the goldsmiths had developed facilities for the storage of people’s valuable commodities. Thus the appearance of goldsmith banking. 

The goldsmith banking offers services such as storage of wealth, transferring money, creating money, providing loans, and the bills of exchange. Bills of exchange were the documents served as a proof of payment that leads to the existence of cheques.

The emergence of this business leads to the development of the modern banking system. They had developed the idea of fractional reserve banking, which is used by commercial banks today worldwide. Fractional reserve banking is a system practiced by banks wherein a bank holds a fraction of the customer’s deposits while the remainder of the fraction goes for the loaning.

In 1650, the founder of the Stockholms Banco, Johan Palmstruch, proposed the idea of paper money to King Charles of Sweden. The first two proposals were rejected, while the third proposal made its way to the issuance of paper money in 1661.

After months of seeing convenience and safety, the paper money had done and how it boosted Sweden’s commerce; many European governments issued their own paper money. 

From the 17th century to the 19th century, banks have accepted deposits, provides money lending, and fund transfers. These emerging banks increased industrial and commercial growth by practicing modern banking and providing a convenient means of payment. The successful new banking practices, later on, spread in other parts of Europe and to the world. 

These businessmen and bankers from the early centuries undeniably contributed to how banks operate in our modern times. As the years go by and with knowledge still increasing, banks are always making improvements on how to make their services accessible to everyone.

Top Five Biggest Banks in the World 

Industrial and Commercial Bank of China (ICBC)

The Industrial and Commercial Bank of China (CBC) is a commercial bank owned by the state. Founded in January 1984, ICBC is ranked as the largest bank globally, with a total of USD 3.47 trillion assets as of December 2018. ICBC mostly focuses its effort in industry and offers most of its loans in transportation, manufacturing, and in power and retail.

China Construction Bank Corporation (CCB)

China Construction Bank Corporation is the second-largest bank in the world next to the Industrial and Commercial Bank of China (ICBC). It is one of the oldest banks in China that was established in 1954. It holds about USD 3.02 trillion in assets. 

Agricultural Bank of China (ABC or AgBank)

Agricultural Bank of China, or also known as AgBank, was founded in 1951 and one of the Big Four banks in China. It holds about USD 2.82 trillion assets, making it the third-largest bank in the world. ABC or AgBank has branches in many of the world’s largest cities, such as London, New York, Seoul, Sydney, and Singapore. Incidentally, ABC bank has been a victim of China’s largest robbery, where thieves have stolen about USD 7.5 million.  

Mitsubishi UFJ Financial Group (MUFG)

As number four of the world’s largest bank by total assets, Mitsubishi UFJ Financial Group (MUFG) holds an asset of about USD 2.63 trillion. Founded in 2005, MUFG provides a variety of investment and financial services, namely trust banking, international finance, asset management services, and commercial banking.

Bank of China  (BOC)

Bank of China (BOC) is one of the oldest banks in China, founded in 1912. It is the fifth-largest bank in the world, with a total asset of USD 2.61 Trillion. On December 31, 2009, the Bank of China was regarded as the second-largest lender in China.

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