History of banking

Banking has been around in one form or another throughout recorded history, as issuers of currency and as stores of wealth. Even before currency emerged, starting with the first minted coins, and then adding what were known as banknotes, paper currency, banks still were around to manage the accumulation of assets. In order to manage an empire for instance, even the earliest ones, some form of banking was required to manage trade and keep the flow of goods and services moving both within the empire and to other empires.

Once currency emerged, this made this exchange of value much easier and efficient, and now one could simply trade things like coins or gold for other goods. You can’t have any form of currency without banking to manage it, and even the mere issuing of it requires management by banks of some sort.

So the earliest incarnations of banks were central banks, operated by governments, to help manage their economies, although when most people think of banks they usually think retail banks, the places where they deposit their money and borrow money from. Central banks though are at the top of the banking hierarchy in an economy and provide management and oversight of the entire economy, so that individual banks can operate efficiently and prosper.

In ancient times, temples typically performed this function, and in addition to storing money for others, and providing security to depositors, there is evidence to suggest that these temples also lent out money, although their function was primarily to store assets. We now had the makings of the first retail banking system, from which banks as we know today evolved from.

Most of the money lending during these times was performed by individuals, known as money lenders, which would be similar to what we could call loan sharking today, although this was typically the only commercial lending available.

The money lenders still did a good business back then, but the retail banking of the Romans did provide some serious competition to them, although these banks tended to cater to commercial interests and others of more significant means, leaving the money lenders to deal with the common folk more.

This is a segmentation that we still see even today, with those of higher income and higher reputation having access to superior banking services, while those of lesser means and reputation being relegated to dealing with financial institutions with less friendly terms and a greater risk tolerance to match.

Money lending terms have always been all about risk, and the more risk that is involved or is perceived, the less favorable the terms, including higher interest rates to compensate for higher default rates.

While the organized banking developed by the Romans did fall along with their empire, the idea did persist though, especially the one where the power of law was used liberally to protect banking institutions.

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