Evolution of Banking | Overview & Research Examples (2024)

...Chapter 2 Overview of Banking Before we set forth the reasons why traditional retail banks are facing extinction, readers must understand the historical underpinnings influencing the evolution of the banking system, and the extent to which these factors give insight into the current structure and organization of banks. The past provides lessons for the present and guidance for the future. Although it is not possible to predict the future, it is possible, with a perspicacious eye, to discern the complex interaction of historical forces and factors producing favorable conditions. These have enabled a select few people to identify niches for their banks and to set the finance industry on a new and previously unimagined trajectory. Brief History of Banking Today’s banking system is the latest in a long evolution of financial services. The earliest known practices of banking as attested to by written standards originated in Babylonia around the second millennium BC. These standards were in part formal laws, enshrined in the Code of Hammurabi, and transactions were apparently similar to the practices of modern-day banking. However, in that ancient agrarian society deposits were not of capital but of grain or other crops, cattle, and precious metals. The fundamental concepts underlying the modern-day banking system were evident in these primitive arrangements. Loans were advanced, deposits were received, and borrowers paid interest. Similar rudimentary banking arrangements were prevalent in ancient Egypt, having originated in the need for grain to be stocked in warehouses of the centralized state. Depositors used written orders for taking out specific quantities of deposited grains. This system proved so effective that it became self-sustaining, spawning parallel banking practices with respect to precious metals and coinage. The well-documented history of banking in Italy traces back to the medieval cities of Venice, Florence, and Genoa...

...04 A short history of banking Introduction This chapter summarizes the history of banking and the role it plays in society. The creation and changing nature of money itself are considered, as is the evolution of banks and banking as we know it today. Finally, we will look at the 2007–08 global financial crisis and what it’s meant for banks and the banking sector. LEARNING OBJECTIVES By the end of this chapter you will be able to: describe the evolution of money and explain its primary functions; explain how banks have evolved over time and differentiate between the types of banks that now operate in the marketplace; apply ethics to banking and evaluate the attributes of an ethical bank; evaluate how the banking industry has responded to crises in the industry, and in particular, the changes that have been triggered in response to the 2007–08 global financial crisis. What is money? Money is the raw material with which all banks must work. Money existed long before banks emerged, but without money it is hard to imagine what services would be required of a bank. This opening section considers the functions that money serves in society. Money has generally been viewed to have four main functions: As a means of exchange or payment Prior to the introduction of an agreed currency or money, barter was the only means of exchange. It was difficult to agree or calculate an accepted value of products unless there happened to be a ‘co-incidence of wants’, and it’s easy for us to see how difficult this could have been in terms of working out a ‘fair’ rate of exchange between two very different goods or services. Once the price of products has been established, money itself can be used as the form of payment. For money to fulfil this function there has to be trust in its use; first, that it has the underlying value it is marked as representing, and second, that it can be generally used to purchase other items in that community, region or country...

...From the metallic coins during the Holy Roman Empire between 1618–23 to today's collateralized debt obligations (CDOs), financial institutions have successfully developed numerous financial products which keep stimulating and provoking human greediness for the sake of obtaining their financial returns. Before detailing the history of crises, here is a very brief history of finance itself. 5.2 The Historical Development of Banking and Finance 5.2.1 From Early Banking To Trade-Related Banking The origin of modern banking can be traced back to the 18th century BC and the core activity of banking at the time was ‘to act as intermediaries between depositors and borrowers’. 1 While there is no precise record of when banking began, nonetheless, one of the earliest references to the banking practices is the Code of Hammurabi. In International Banking, Hughes and MacDonald explain: Drawn up by King Hammurabi, the founder of the Babylonian Empire (1728–1686 BC), the Code contains around 150 paragraphs that pertain to loans, interest, pledges and guarantee. Economic historians further surmise that bank operations by temples and great landowners had become prevalent enough that King Hammurabi felt compelled to establish standard rules of procedure. 2 The Code of Hammurabi provides one of the earliest records of financial dominance and control by the few powerful and rich organizations as well as individuals. When human history reached the period between 640 and 630 BC, with the creation of coinage by the Lydians and the development of sea travel, trade was able to spread throughout the Mediterranean, Indian Ocean and the Far East. Although, at that time, the concept of banking was at a rudimentary stage, the function of money and banking was solely linked to facilitating trade. As trade developed further, banking activities became more sophisticated...

...10 The development of commercial banking Exchange banking A bank is an institution with three possible functions, which, in historical order, may be called conversion, deposit and giro. The origins of the first of these, conversion, are to be found in the profession of money-changer, which developed very soon after the separate Greek city states each began to issue their own silver coins (Bogaert, 1966, p. 136). 1 Its basis in any city was the sale and purchase of foreign coin, with payment in the local currency, and a margin between the prices paid which gave the money-changer his profit. The table, or trapedza, at which the money-changer carried on his trade provided the word which is still that for ‘bank’ in modern Greek. When, at the dawn of the Renaissance, Italian money-changers began to carry on their business in the same way, the Latin equivalent, bancum, was used and eventually became current usage for a ‘bank’ in almost every part of the world—except Greece (ibid., p. 144). As chapter 15 below will show, this form of foreign exchange was—except in the ancient world—of relatively minor importance: it did however provide the basis for depost banking, so its historical importance can hardly be underrated. The rise of deposit banking The stock in trade of the money-changer was money, the most immediately valuable, because the most liquid, of all the assets known to the local economies in which he operated. The money-changer had then, by force of circ*mstance, to have a safe deposit for his own stock of foreign coin, so it is not surprising that others who wished to keep their money safe entrusted it to him. The money-changer who accepted such deposits became a banker by keeping no more than a reserve of money to meet the claims of the depositors, investing the balance of the sums deposited in loans and trading ventures (Bogaert, 1966, pp...

...A. (n.d.). The origins of money, www.armstrongeconomics.com/research/monetary-history-of-the-world/historical-outline-origins-of-money/money-and-the-evolution-of-banking/ retrieved on 7 February 2017. AustinG,SugiharaK. Local suppliers of credit in the third word, 1750–1960.New York:Macmillan Press;1993. AustinG,UcheC.U. Collusion and competition in colonial economies: Banking in British West Africa, 1916 – 1960. Business History Review.2007;81:1–26. BascomW.R. The esusu : A credit institution of the Yoruba. The Journal of the Royal Anthropological Institute.1952;82:63–69. BianchiR.S. Daily life of the Nubians.Greenwood Press;2004. BrownbridgeM,HarveyC. Banking in Africa: The Impact of Financial Sector Reform since Independence.James Currey Oxford;1998. CapieF,BillingsM. Evidence on competition in English commercial banking. Financial History Review.2004;11:69–103. DaviesG. Ahistory of money from ancient times to the present day.3rd ed.Cardiff:University of Wales Press;2002. De BlijH.J,MullerP.O. Geography: Realms, regions and concepts.14th ed.Hobeken:NJ;2003John Wiley & Sons,...

...4 The Evolution of Monetary Order Having seen the crucial communicative role that money plays in social and economic order, we need to examine in more detail the ways in which money is supplied to the market process and the kinds of institutions that are more likely to lead to monetary order, thus enhancing overall economic order. In particular, we can look at how monetary institutions evolve from the simple use of money, and how those institutions fit in to the broader evolution of the market process. A monetary order will, as we have seen, be more than simply the emergence of a medium of exchange. The use of money opens up many new horizons within economic interaction. Money makes possible economic calculation and provides entrepreneurs with profit-and-loss signals that guide their production plans, leading to an increase in rationally allocated resources and the division of labor. These developments, along with double-entry bookkeeping and accounting skills in general, increase the complexity of the market process. The evolution of simple monetary exchange and economic calculation stimulates and necessitates the increased use of money and provides incentives for the further evolution of monetary institutions. Banks, demand deposits, currency, clearinghouses, and other extensions of the financial industry come into being and evolve during this process of economic development. The increased complexity of the creative development of money requires coordination through more advanced monetary institutions. To be able to maintain a high degree of economic order, a properly functioning and sufficiently complex set of monetary institutions is necessary. Both the features of, and the interactions between, these advanced, complex monetary institutions constitute a monetary order...