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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Banks operated by lending money secured against personal belongings, facilitating transactions with local and foreign currencies while supporting local businesses.


Humans have long engaged in borrowing and lending. Indeed, there is evidence that these activities took place as long as 5000 years ago at the very dawn of civilisation. Nevertheless, modern banking systems only emerged within the 14th century. The word bank originates 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 accordingly built organisations to finance and guarantee voyages. Initially, banks lent cash secured by individual possessions to regional banks that dealt in foreign currencies, accepted deposits, and lent to neighbourhood businesses. The banks also financed long-distance trade in commodities such as for example wool, cotton and spices. Additionally, through the medieval times, banking operations saw significant innovations, like the use of double-entry bookkeeping as well as the utilisation of letters of credit.

The bank offered merchants a safe place to keep their silver. At precisely the same time, banking institutions extended loans to individuals and businesses. Nevertheless, lending carries dangers for banking institutions, because the funds provided may be tangled up for longer periods, potentially restricting liquidity. So, the bank came to stand between the two needs, borrowing quick and lending long. This suited everybody: the depositor, the borrower, and, needless to say, the financial institution, which used client deposits as borrowed money. However, this this conduct also makes the bank susceptible if numerous depositors demand their funds right back at exactly the same time, that has happened frequently around the world plus in the history of banking as wealth management firms like SJP would probably attest.


In fourteenth-century Europe, funding long-distance trade was a high-risk business. It involved some time distance, therefore it suffered from just what has been called the essential issue of exchange —the risk that someone will run off with all the goods or the funds following a deal has been struck. To fix this issue, the bill of exchange was developed. It was a piece of paper witnessing a customer's promise to cover goods in a particular currency whenever products arrived. Owner of this items could also offer the bill immediately to increase money. The colonial age of the 16th and seventeenth centuries ushered in further transformations into the banking sector. European colonial powers founded specialised banks to fund expeditions, trade missions, and colonial ventures. Fast forward towards the 19th and 20th centuries, and the banking system went through yet another progression. The Industrial Revolution and technical advancements influenced banking operations tremendously, ultimately causing the establishment of central banks. These organisations came to do an important role in regulating financial policy and stabilising national economies amidst fast 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 concur.