History of Banks

Banks are a common sight on our streets today, and while modern banks offer a huge range
of financial services, their basic functions are the same today as they have been for many
years: to protect wealth and to lend money to those who need or want it.

The concept of banks as a place in which wealth could be protected and loans provided can
be traced back 3800 years to ancient Babylon. At that time, temples were considered the safest
places to deposit gold and other valuables: they were strong, solid buildings which were
constantly attended by priests, and their sacred element may also have helped to frighten off
thieves. The priests realised that rather than let the gold lie idle in the temple, they could
benefit by lending it to the government or to those in the trading community. In return, they
received a fee with which they could help to maintain their temple and (perhaps more
discreetly) their increasingly lavish lifestyles.

When ancient Greece became established as a major regional power, banking methods
became increasingly sophisticated. Alongside the temples and other public bodies, private
entrepreneurs also began to provide financial services. They took deposits, made loans,
changed money from one currency to another and tested coins for weight and purity. This
system was adopted by the ancient Romans, who established banks across the Empire. Loans
could be made in one bank and the debt, together with interest, could be repaid into another.
Public notaries were appointed to register financial transactions between banks.

With the decline of the Roman Empire in the 4th and 5th centuries AD, international and
regional trade diminished and bankers became less necessary than before. There was also a
change in attitudes, with many hostile to the charging of interest, which they saw as being
morally wrong. However, as European trade began to grow again in the 12th and 13th
centuries AD, there was a clear need once again for an effective banking system. In north
Italy, a group known collectively as the Lombards became money lenders to the rich and
powerful. In addition to adopting methods which had been applied in ancient Rome, the
Lombards also invented the system of double-entry book-keeping, a financial accounting
system which records each financial transaction as a credit and a debit. This was an important
development, as it meant that banks were less likely to make mistakes in their dealings with
customers.

By the 15th century, the city of Florence had established itself as the heart of European
banking. Families like the Bardi and Peruzzi, and later the Medici, became immensely
wealthy as a result of lending to merchants and those in positions of power. They are also
credited with devising a feature of banking that is still familiar today. A merchant would pay
money into a bank in one town, and would be issued with a receipt. This receipt could be sent
to another merchant in another town, who could take it to a bank there and exchange it for
money. Today we know these receipts as cheques.

In the latter part of the 15th century, families like the Medici began to play a more active role
in politics, which distracted them from the task of making money. As a result, the importance
of Florence as a banking centre diminished, and a new centre began to evolve. In 1487, a
wealthy and resourceful family, the Fuggers, started lending money to powerful members of
the Habsburg dynasty in Germany. From those unable to pay the very high interest rates (up
to 45% in some cases), they accepted interest in the form of the profits from mines and other
enterprises, a risky business which was as open to failure as it was to success. Fortunately,
the Fuggers flourished. Unlike many modern bankers, they used their enormous wealth
responsibly, establishing charities and communities for the poor.

Read the passage about “History of Banks” and decide whether the sentences are True/
False or Not Given.