Analysing transformations in the banking system in the past

Analysing transformations in the banking system in the past

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As trade expanded on a large scale, particularly on the international level, financial institutions became essential 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 institutions to finance and guarantee voyages. Initially, banks lent money secured by personal possessions to regional banks that traded in foreign currency, accepted deposits, and lent to neighbourhood companies. The banks also financed long-distance trade in commodities such as wool, cotton and spices. Furthermore, 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 gold. At precisely the same time, banking institutions extended loans to individuals and businesses. Nonetheless, lending carries dangers for banks, because the funds provided may be tangled up for longer periods, potentially limiting liquidity. Therefore, the financial institution came to stand between the two needs, borrowing short and lending long. This suited everybody: the depositor, the debtor, and, of course, the lender, that used customer deposits as borrowed cash. Nonetheless, this practice additionally makes the lender vulnerable if numerous depositors need their cash right back at the same time, that has occurred regularly all over the world and in the history of banking as wealth administration companies like St James Place would likely confirm.


In 14th-century Europe, financing long-distance trade had been 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 someone will run off with all the products or the money following a deal has been struck. To solve this dilemma, the bill of exchange was developed. This is a piece of paper witnessing a customer's promise to cover goods in a particular currency whenever goods arrived. Owner of this items may also offer the bill immediately to increase money. The colonial age of the 16th and seventeenth centuries ushered in further transformations in the banking sector. European colonial countries founded specialised banks to finance expeditions, trade missions, and colonial ventures. Fast forward towards the 19th and twentieth centuries, and the banking system underwent still another evolution. The Industrial Revolution and technological advancements impacted banking operations enormously, ultimately causing the establishment of central banks. These institutions arrived to perform a vital 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.