Exactly what were the initial functions of banks in ancient times

Exactly what were the initial functions of banks in ancient times

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Modern banking systems as we understand them today just emerged into the 14th century. Find more about this.


Humans have long engaged in borrowing and lending. Certainly, there is evidence that these activities took place as long as 5000 years ago at the very dawn of civilisation. However, modern banking systems only emerged in the 14th century. The word bank comes from the word bench on which the bankers sat to conduct business. People required banking institutions once they started initially to trade on a large scale and international stage, so they accordingly developed organisations to finance and insure voyages. At first, banks lent cash secured by individual possessions to local banks that dealt in foreign currencies, accepted deposits, and lent to local businesses. The banking institutions additionally financed long-distance trade in commodities such as for example wool, cotton and spices. Also, throughout the medieval times, banking operations saw significant innovations, such as the adoption of double-entry bookkeeping and the use of letters of credit.

The lender offered merchants a safe destination to keep their gold. On top of that, banks extended loans to individuals and organisations. Nonetheless, lending carries dangers for banks, as the funds supplied are tied up for extended periods, possibly restricting liquidity. So, the bank came to stand between the two requirements, borrowing quick and lending long. This suited everyone: the depositor, the debtor, and, needless to say, the bank, that used client deposits as borrowed money. But, this practice also makes the lender vulnerable if many depositors need their cash right back at exactly the same time, which has occurred regularly throughout the world as well as in the history of banking as wealth management businesses 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 it experienced exactly what happens to be called the fundamental dilemma of exchange —the risk that somebody will run off with the products or the money after having a deal has been struck. To resolve this dilemma, the bill of exchange was developed. This is a piece of paper witnessing a customer's promise to fund products in a specific currency when the items arrived. The seller associated with goods may possibly also sell the bill straight away to raise cash. The colonial age of the 16th and seventeenth centuries ushered in further transformations within the banking sector. European colonial countries established specialised banks to invest in expeditions, trade missions, and colonial ventures. Fast forward to the nineteenth and twentieth centuries, and the banking system underwent still another progression. The Industrial Revolution and technical advancements influenced banking operations dramatically, leading to the establishment of central banks. These organisations arrived to do an important role in regulating financial policy and stabilising national economies amidst fast industrialisation and financial growth. Moreover, launching modern banking services such as for instance savings accounts, mortgages, and charge cards made economic services more available to the general public as wealth mangment companies like Charles Stanley and Brewin Dolphin would likely agree.