Bank :

A bank is a financial institution that accepts deposits from the public and creates
credit. Lending deposits can be performed either directly or indirectly through
capital markets. The purpose of Banking is to ensure transfer of money from
surplus unit to deficit units  Banks In all countries work as the repository of
money.

Banking Sector of Bangladesh:

Since liberation, Bangladesh passed through fragile phases of development In

the Banking sector. The nationalization of Banks In the post liberation period was
Intended to safe the Institutions and the Interest of the depositors. Those
handling the banking sector have borne the burden of putting banks on reliable
footings. Despite all that was done, some elements of irregularities appeared.
With the assertion of the role of the Central Bank, the Bangladesh Bank started
adopting measures for putting banking institutions on right track Yet the
preponderance of public sector management of banks left some negative effects
In the money market In particular and the economy In general The agility among
the borrowers manipulates the banking sector as a whole. In effect, a default
culture, among other effects, appeared on the scene.

The opening of private and foreign participants to the banking sector was
Intended to obtain desirable results from banking. The authorization of private
banks was designed to create competition among the banks and competition in
the form of efficiency within and the productivity In enterprises funded by banks.
Unfortunately, for the people, at large, banking sector is yet to obtain the credit
for efficiency, credibility  and growth.

The clever, among the user of banking services, have Influenced the
management of banks, for obtaining short term and long term loans. They
sometimes showed inflated equity to get money for Investment in businesses and
industry. Few diverted their loan money to purposes different from the loan
proposals, and Invested In non profitable units have failed to repay their loans to
the banks. For this reason new entrepreneurs are not getting capital while
defaulting entrepreneurs have started obtaining either relief In the form of
rescheduling of the repayment program or additional inevitable money for
diversified units.

But now, the situation Is changing day by day, Bangladesh Bank is taking more
initiative for reducing the bad loan. The banks’ are also taking smart techniques
and decision to reduce the bad loan and Investing In more secured place. This Is
not only good for the banks but also good for Bangladesh economy, because
Investors are trying to improve their business decision & Innovating more
constructive business plan.

Banking in Bangladesh:

Banking is the backbone of national economy. All sorts of economic and financial
activities revolve round the axis of the bank. As the industry produces goods and
commodities, so does the bank creates and controls money-market and
promotes formation of capital. From this point of view, banking-a technical
profession- can be termed as industry. Services to its customers are the products
of banking industry besides being a pivotal factor in promoting capital formation
in the country. As all economic and fiscal activities revolve round this important
‘Industry, the role of banking can hardly be over emphasized.

circumstances being such, It becomes Imperative to find out the role that now
planning in the country and analyze its operational aspects so as to ascertain the
Importance of this delicate financial sector and Its over all Impact on our national
economy. To ascertain the role of banks and to analyze Its operational aspects
and its overall Impact on our national economy a through study as to Its
distribution, expansion and contribution Is essential to comprehend Its past,
present and future bearings for the growth and development of the banking
sector of the country. In the global context, the role banks is far – reaching and
more penetrating In the economic and fiscal discipline, trade, commerce,
Industry, export and import- all carried through the bank. Banks are the only
media through which international trade and commerce emanate and entire
credit transactions, both national and International.

Both private and public bank is essential in terms of an economy. Private Banks
play a great role in economic development of a country. Bangladesh is at least
developing country and its economy is agro-based. Poverty is the main problem
in this country. Banks collect money from large number of people, which has
made possible for the commerce and industry to meet the requirements.

There are some recommendation for the banks in our country :

 Banks should neglect the manual based operation

 Staff and officers should be polite

 Banks can introduce new product

 Appropriate training should be provided

 Banks should take strong position against corruption

History of the banking system in the world :
The idea of banks began as long ago as 1,800 BC in Babylon. In those days
moneylenders made loans to people. In Greece and Rome banks made loans and
accepted deposits. They also changed money. (In the Bible Jesus famously drove the
money changers out of the temple in Jerusalem).

However with the collapse of the Roman Empire trade slumped and banks temporarily
vanished. However banking began to revive again in the 12th and 13th centuries in the
Italian towns of Florence and Genoa.

In the 16th century a German family called the Fuggers from Augsburg became very
important bankers.

The Beginning of Banks in England

In England banks developed in the 17th century. Sometimes people deposited their
money with goldsmiths for safety. The goldsmiths issued a note promising to pay the
bearer a certain sum on demand. In time people began to exchange these notes
instead of coins because it was easier and safer. Goldsmiths began to lend the money
deposited with them in return for a high rate of interest. They also paid interest to people
who deposited money in order to attract their savings.

However not only individuals borrowed money. Governments also needed to borrow,
especially in wartime. The government borrowed money from wealthy individuals and
later repaid them with interest from taxation.

Divine Deposits

Banks have been around since the first currencies were minted — perhaps even before
that, in some form or another. Currency, particularly the use of coins, grew out of
taxation.

Flipping a Coin

These coins, however, needed to be kept in a safe place. Ancient homes didn't have the
benefit of a steel safe, therefore, most wealthy people held accounts at their temples.
Numerous people, like priests or temple workers whom one hoped were both devout
and honest, always occupied the temples, adding a sense of security.

There are records from Greece, Rome, Egypt and Ancient Babylon that suggest
temples loaned money out, in addition to keeping it safe. The fact that most temples
were also the financial centers of their cities is the major reason that they were
ransacked during wars.

Coins could be hoarded more easily than other commodities, such as 300-pound pigs,
so there emerged a class of wealthy merchants that took to lending these coins,
with interest, to people in need. Temples generally handled large loans, as well as loans
to various sovereigns, and these new money lenders took up the rest.

The First Bank

The Romans, great builders and administrators in their own right, took banking out of
the temples and formalized it within distinct buildings. During this time, moneylenders
still profited, as loan sharks do today, but most legitimate commerce — and almost all
governmental spending — involved the use of an institutional bank.

Julius Caesar, in one of the edicts changing Roman law after his takeover, gives the
first example of allowing bankers to confiscate land in lieu of loan payments. This was a
monumental shift of power in the relationship of creditor and debtor, as landed
noblemen were untouchable through most of history, passing debts off to descendants
until either the creditor's or debtor's lineage died out.

The Roman Empire eventually crumbled, but some of its banking institutions lived on in
the form of the papal bankers that emerged in the Holy Roman Empire, and with the
Knights Templar during the Crusades. Small-time moneylenders that competed with the
church were often denounced for usury.

Visa Royal

Eventually, the various monarchs that reigned over Europe noted the strengths of
banking institutions. As banks existed by the grace, and occasionally explicit charters
and contracts, of the ruling sovereign, the royal powers began to take loans to make up
for hard times at the royal treasury, often on the king's terms. This easy finance led
kings into unnecessary extravagances, costly wars, and an arms race with neighboring
kingdoms that would often lead to crushing debt.

In 1557, Phillip II of Spain managed to burden his kingdom with so much debt (as the
result of several pointless wars) that he caused the world's first
national bankruptcy — as well as the world's second, third and fourth, in rapid
succession. This occurred because 40% of the country's gross national product (GNP)
was going toward servicing the debt. The trend of turning a blind eye to the
creditworthiness of big customers, continues to haunt banks up into this day and age.
Adam Smith and Modern Banking

Banking was already well established in the British Empire when Adam Smith came
along in 1776 with his "invisible hand" theory. Empowered by his views of a self-
regulated economy, moneylenders and bankers managed to limit the state's
involvement in the banking sector and the economy as a whole. This free
market capitalism and competitive banking found fertile ground in the New World, where
the United States of America was getting ready to emerge. (To learn more,
read Economics Basics.)

In the beginning, Smith's ideas did not benefit the American banking industry. The
average life for an American bank was five years, after which most bank notes from the
defaulted banks became worthless. These state-chartered banks could, after all, only
issue bank notes against gold and silver coins they had in reserve.

A bank robbery meant a lot more then than it does now, in our age of deposit insurance
and the Federal Deposit Insurance Corporation (FDIC). Compounding these risks was
the cyclical cash crunch in America. (To learn more, read Are Your Bank Deposits
Insured?)

Alexander Hamilton, the secretary of the Treasury, established a national bank that

would accept member bank notes at par, thus floating banks through difficult times. This
national bank, after a few stops, starts, cancellations and resurrections, created a
uniform national currency and set up a system by which national banks backed their
notes by purchasing Treasury securities, thus creating a liquid market. Through the
imposition of taxes on the relatively lawless state banks, the national banks pushed out
the competition.

The damage had been done already, however, as average Americans had already
grown to distrust banks and bankers in general. This feeling would lead the state of
Texas to actually outlaw bankers — a law that stood until 1904.

Merchant Banks

Most of the economic duties that would have been handled by the national banking
system, in addition to regular banking business like loans and corporate finance, fell into
the hands of large merchant banks, because the national banking system was so
sporadic. During this period of unrest that lasted until the 1920s, these merchant banks
parlayed their international connections into both political and financial power.

These banks included Goldman and Sachs, Kuhn, Loeb, and J.P. Morgan and
Company. Originally, they relied heavily on commissions from foreign bond sales from
Europe, with a small backflow of American bonds trading in Europe. This allowed them
to build up their capital.
At that time, a bank was under no legal obligation to disclose its capital reserve amount,
an indication of its ability to survive large, above-average loan losses. This mysterious
practice meant that a bank's reputation and history mattered more than anything.
While upstart banks came and went, these family-held merchant banks had long
histories of successful transactions. As large industry emerged and created the need for
corporate finance, the amounts of capital required could not be provided by any one
bank, and so initial public offerings (IPOs) and bond offerings to the public became the
only way to raise the needed capital.

The public in the U.S. and foreign investors in Europe knew very little about investing,
due to the fact that disclosure was not legally enforced. For this reason, these issues
were largely ignored, according to the public's perception of the underwriting banks.
Consequently, successful offerings increased a bank's reputation and put it in a position
to ask for more to underwrite an offer. By the late 1800s, many banks demanded a
position on the boards of the companies seeking capital, and if the management proved
lacking, they ran the companies themselves.

Morgan and Monopoly

J.P. Morgan and Company emerged at the head of the merchant banks during the late
1800s. It was connected directly to London, then the financial center of the world, and
had considerable political clout in the United States. Morgan and Co. created U.S.
Steel, AT&T and International Harvester, as well as duopolies and near-monopolies in
the railroad and shipping industries, through the revolutionary use of trusts and a
disdain for the Sherman Anti-Trust Act. (To find out more about this subject,
read Antitrust Defined.)

Although the dawn of the 1900s had well-established merchant banks, it was difficult for
the average American to get loans from them. These banks didn't advertise and they
rarely extended credit to the "common" people. Racism was also widespread and, even
though the Jewish and Anglo-American bankers had to work together on large issues,
their customers were split along clear class and race lines. These banks left consumer
loans to the lesser banks that were still failing at an alarming rate.

The Panic of 1907

The collapse in shares of a copper trust set off a panic that had people rushing to pull
their money out of banks and investments, which caused shares to plummet. Without
the Federal Reserve Bank to take action to calm people down, the task fell to J.P.
Morgan to stop the panic, by using his considerable clout to gather all the major players
on Wall Street to maneuver the credit and capital they controlled, just as the Fed would
do today.
The End of an Era

Ironically, this show of supreme power in saving the U.S. economy ensured that no
private banker would ever again wield that power. The fact that it took J.P. Morgan, a
banker who was disliked by much of America for being one of the robber barons with
Carnegie and Rockefeller, to do the job, prompted the government to form the Federal
Reserve Bank, commonly referred to today as the Fed, in 1913. Although the merchant
banks influenced the structure of the Fed, they were also pushed into the background
by it. (To learn about robber barons and other unseemly financial entities,
see Handcuffs and Smoking Guns: The Criminal Elements of Wall Street.)

Even with the establishment of the Federal Reserve, financial power and residual
political power was concentrated in Wall Street. When World War I broke out, America
became a global lender and replaced London as the center of the financial world by the
end of the war. Unfortunately, a Republican administration put some unconventional
handcuffs on the banking sector. The government insisted that all debtor nations must
pay back their war loans, which traditionally were forgiven, especially in the case of
allies, before any American institution would extend them further credit.

This slowed down world trade and caused many countries to become hostile toward
American goods. When the stock market crashed on Black Tuesday in 1929, the
already sluggish world economy was knocked out. The Federal Reserve couldn't
contain the crash and refused to stop the depression; the aftermath had immediate
consequences for all banks.

A clear line was drawn between being a bank and being an investor. In 1933, banks
were no longer allowed to speculate with deposits and the FDIC regulations were
enacted, to convince the public it was safe to come back. No one was fooled and the
depression continued.

World War II Saves the Day

World War II may have saved the banking industry from complete destruction. WWII,
and the industriousness it generated, lifted the U.S. and world economies back out of
the downward spiral.

For the banks and the Federal Reserve, the war required financial maneuvers using
billions of dollars. This massive financing operation created companies with huge credit
needs that, in turn, spurred banks into mergers to meet the new needs. These huge
banks spanned global markets.

More importantly, domestic banking in the United States had finally settled to the point
where, with the advent of deposit insurance and mortgages, an individual would have
reasonable access to credit.
The Bottom Line

Banks have come a long way from the temples of the ancient world, but their basic
business practices have not changed. Banks issue credit to people who need it, but
they demand interest on top of the repayment of the loan. Although history has altered
the fine points of the business model, a bank's purpose is to make loans and protect
depositors' money.

Even if the future takes banks completely off your street corner and onto the internet —
or has you shopping for loans across the globe — banks will still exist to perform this
primary function.

History of the banking system in Bangladesh :

Bangladesh is a developing country. Banking sector plays a pivotal role in the
economic development of the country. Banking system of a country can well be
said as a barometer of its economic prosperity. Well-developed banking system
is indispensable for modern trade and commerce. Now-a-days, banks not only
act as custodian of public money but also are indispensable as vital agent for
maintenance of sound financial position of a country.

Nationalized Commercial Banks (NCBs) were established in Bangladesh in 1972

through amalgamation of twelve commercial banks that were operating in pre-
independent Bangladesh allowing the poor access to fund, reducing capital flight
to foreign countries, and increasing domestic investment were some of the basic
objective of this nationalization. That means a society with wealth distributed as
equitably as possible. But with time difference those banks has changed their
policies and strategies, which were not fulfilling the class banking policies of the
government. On an evaluation of the activities of commercial banks, it has been
observed that the progresses made by the banking industry since nationalization
was not impressive. The nationalized banks could not play the due role in the
implementation of government programs and policies. Hence, a trend of de-
nationalization of banks started from mid 80’s.

In the meantime, the policy of the government towards banking industry

regarding economic management has changed since 1976. That year private
sector had been entrusted to play a bigger role in the economy than before.
Accordingly, in order to provide more credit to local investors the private sector
banking had been introduced. Government decided to allow setting up of local
Private Commercial Banks (PCB) in addition to Nationalized Commercial Banks
(NCB) operating in the country.

After the independence, banking industry in Bangladesh started its journey with 6
nationalized commercialized banks, 2state owned specialized banks and 3
foreign Banks. In the 1980s banking industry achieved significant expansion with
the entrance of private banks. Now, banking sector in Bangladesh is primarily of
two types:
A). Schedule Bank
B). Non-schedule Bank

A). Scheduled Bank: The banks which get license to operate under Bank
Company Act, 1991 (Amended in 2003) are termed as Scheduled Bank. State-
owned commercial banks, private commercial banks, Islamic commercial banks,
foreign commercial banks and some specialized banks are Scheduled Bank.
B). Non-Scheduled Bank: The banks which are established for special and
definite objective and
operate under the acts that are enacted for meeting up those objectives are
termed as Non-Scheduled
Bank. These banks cannot perform all functions as like as scheduled banks.
Grameen Bank, Probashi

Contribution of Commercial Banks of Bangladesh

 Banks promote capital formation
 Investment in new enterprises
 Promotion of trade and industry
 Development of agriculture
 Balance development of different savings
 Influencing the economy activity
 Implementation of monetary policy
 Export promotion cells
Bangladesh is a rising economic country. In Bangladesh we have total 55 banks
to provide its services nationwide.

Gradually, the banking system of Bangladesh upgraded to internet and mobile

banking which is helping the country move really fast. Interest rate is still too high
which is not favorable to business entities. In addition, the target of financial
inclusion has not been facilitated by this avowed policy.