The age that we live in is one of instant access to information and highly competitive market places. As consumers, we are starting to take the conditions of our economy for granted, but we need only look at the history of banking to understand that things were very different, not too long ago.
History of Banking
The history of banking, as far as it can be traced, began in ancient Egypt. In those days, the principal form of exchange was in grain, held in massive warehouses. Egyptian peasants would harvest their grain and would engage in the form of barter for other products and services to keep them going throughout the year.
Eventually, the tedious process of withdrawing and transporting quantities of grain began to be replaced by a form of promissory note against a given quantity, which became a forerunner of today’s chequing system. In many other developing civilizations, a similar system was gradually being evolved, with the majority being based around coinage, with the Romans being a principal example.
However, the Egyptian grain banks are generally regarded as the first albeit primitive examples of modern banking.
Banking history owes a lot to the Italians, and the first traces of modern-day practices can be found there. During medieval times, members of wealthy merchant families residing in the cities of Venice, Florence, and Genoa began to make loans to the upper echelons of society there, usually without any form of security.
These loans were made to finance a variety of activities, from waging wars to financing international trading, with no little amount going towards maintaining the excessively opulent standards that these leading families in Italian society were expected to maintain.
The two most prominent merchant families of that time, the Bardies and the Peruzzi’s, were so successful in their banking enterprises that they relinquished all their other trading activities to concentrate their efforts in this increasingly lucrative field. During the 14th century, both families, who enjoyed a healthy rivalry, expanded their activities throughout all Western Europe.
One of their principal customers of that time was the King of England, Edward the third, who borrowed huge sums of money to finance his favorite project: the hundred years war with France. After the war petered out, Edward found that he was either unwilling or unable to pay his debts, and both these banks descended into ignominious bankruptcy.
As the banking industry developed, the British began to refine and develop more sophisticated systems that still form the backbone of modern banking. Learning from their Italian counterparts that handing out loans without security was a recipe for disaster, and began to request various forms of security against these loans, which could be either long or short term.
This system of lending money, whilst not so popular with the borrower, provided banks with the security that they needed to consolidate and grow. In return, the government of each country began to form a central bank that was responsible for administrating banks that were growing and spreading continuously throughout the United Kingdom.
The Bank of England, founded in 1694, was one of the first to issue bank notes. The Bank’s mythical offices on Threadneedle Street, where it remains more or less in its original form till today.
In 1844 the Bank Charter Act was issued designed to ensure that the Bank of England would be the only body that issued banknotes and would be required to hold a very reserve in gold or silver to back the notes in the event of a collapse. This act remained current till as recently as 1931 when all the gold and foreign exchange reserves became the property of the Treasury. In 1946 the Bank of England was eventually nationalized.
The mid-half of the twentieth century witnessed many changes in the banking system, both in the UK as well as throughout the World. The advent of the credit card, easy credit, overdrafts, and many other developments saw banking take on a face that has proved, at least in the short term, to have caused tremendous difficulties both to the system as well as the public at large.
It would appear that the history of the banking system is still being written and, hopefully, will find ways to overcome and learn from its current problems.
Access to Credit
Banks were not always the primary source of credit, but now it is difficult to find people who do not have a bank mortgage, line of credit, or credit card. In fact, an entire range of smaller institutions have even been established to provide credit services to people who would otherwise be rejected by larger establishments.
Before this change, many families lived with very few credit options. Although it may seem appealing to yearn for a time with less debt, we cannot forget the conveniences that come with such a sophisticated credit system.
For example, credit cards allow us to pay for and reserve items remotely, without actually visiting a place in person. This has been one of the primary driving sources in the online sales revolution, which has taken convenience shopping to the next level.
In addition, a time without credit was also a time when many people were forced to do without until they could save enough or find a family member from whom to borrow. Now, people have the ability to control their own finances.
Centralizing Banking Activity
Three decades ago, there were many more bank accounts in the UK than there are today. In a very short time most of these smaller institutions were acquired by larger ones, meaning that now there are scarcely more than a dozen global companies that handle most of our daily banking.
Not only does a more centralized system provide a greater level of convenience for customers, it has also allowed for improved security and a greater innovation in banking products.
Automated Banking and Banking Online
Instant information has changed the face of banking. Gone are the days when visiting the bank was a weekly chore that included making any necessary deposits, collecting the week’s household cash fund, and paying some bills.
Now, people are carrying cash less frequently and relying more on debit cards and cash machines, thus eliminating the necessity of a special trip to the bank.
Online banking has further reduced the number of people who visit their local bank branch. Now, instead of paying bills in person people pay them any time of the day from the comfort of their home.
Whether it is access to information online or just a new awareness of our money, we are fast becoming active participants in our financial decisions. In the past, many families trusted their local bank manager’s recommendations and trusted them to handle many financial decisions. Now, customers are becoming more sophisticated and are demanding more from their banks.
This, combined with an increasing competitive environment in the banking industry, has created a new level of customer service from banks; instead of taking their customers for granted, banks are starting to take a more proactive role in caring for individuals and their needs.