History of Banking System


History of Banking System

                     There are various view about banking and its evolution, the origin of a word ‘bank’  is that it is derived for Italian word ‘banque’ which  means bench. Another view is that it has originated from f German word ‘banc’ which means a joint stock firm.

According to G.crowther  the present day banker has three ancestors;

History of Banking System
History of Banking System

1.The Merchants:

         The earliest stage in the growth of banking can be traced to the working of merchants. These merchants were traders in commodities.

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         It was risky for the trader to carry metallic money with themselves for payment. The traders with high reputation began to issue receipts which were accepted as titles of money. This was the first mode of payment; the merchant banking forms the earliest stage in the evolution of modern banking.

The Goldsmiths:

         The goldsmiths receive gold and silver for safe custody. The goldsmiths began to issue receipts for the metallic money kept with them. These receptors with the passage of time became payable to the bearer on demand. In this way the goldsmiths note became a medium of exchange and a mean of payment.in modern banking the ‘goldsmiths receipt’ is called ‘bank note’.

The money Lender:

         The development of banking arose when goldsmiths become money lender. The goldsmiths came to know that they could keep a small proportion to the total deposits for meeting the demands of customer for cash and the rest they could easily land. They allowed the depositors to draw over and above the money actually standing to their credit. In other term we can say that they allowed the overdraft facilities to their depositors.

         When every money lender issued receipts and most of them allowed the overdraft facilities there was the n too much confusion in the banking system. The money lender in order to earn profits could not keep adequate reserves for meeting the demands of the customer for cash. The failure on the part of the money lender to return money caused widespread distress among the people. In order to create confidence among the people they regulate the banking system.

         The first central bank was formed in Geneva in 1578. Bank of England was established in 1694.the modern commercial banking system actually developed in the nineteenth century.