Banking has been in existence since the first currencies were minted and wealthy people realized they needed a safe place to store their money. Ancient empires also needed a functioning financial system to facilitate trade, ꦚdistribute wealth, and collect taxes. Banks were to play a major role in that, just as they do today.

Banking Is Born

The barter system of exchanging goods for goods worked reasonably well for the earliest communities. It prove problematic as soon as people started traveling from town to town in search of new mar♊kets for their goods and new products to take home.

Over time, coins of various sizes and metals began to be minted to provide a sto🃏re of value for trade.

Coins, however, need to be kept in a safe place, and ancient homes did not have steel safes. Wealthy people in Rome stored their coins and jewels in the basements of temples. They were seen to be secure, given the presence of priests and temple workers, not to mention armed guards.

Historical records from Greece, Rome, Egypt, and Babylon suggest that temples loaned money in addition to keeping it safe. The fact that temples often functioned as the financial centers of their cities is one reason why they were inevitably ransacked during wars.

Coins could be exchanged and hoarded more easily than other commodities, such as 300-pound pigs, so a class of wealthy merchants took to lending coins, with interest, to people in need of them. Temples typically handled large loans, including those to various sovereigns, while wealthy merchant money lenders handled the rest.

Banking in the Roman Empire

The Romans, who were expert builders and administrators, extricated banking from the temples and formalized it within distinct buildings. During this time, moneylenders still profited, as 澳洲幸运5官方开奖结果体彩网:loan sharks do today, but most legitimate commerce—and almost all government spending—involved the use of an 💃institᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚutional bank.

According to the World History Encyclopedia, Julius Caesar initiated the practice of allowing bankers to confiscate land in lieu of loan payments. This was a monumental shift of power in the relationship of creditor and debtor, as landed noblemen had previously been untouchable, passing debts on to their descendants until either the creditor’s or debtor’s lineage died out.

The Roman Empire eventually crumbled, but some of its banking institutions lived on in the Middle Ages through the services of papal bankers and the Knights Templar. Small-time moneylenders who competed with the church were often denounced for usury.

European Monarchs Discover Easy Money

Eventually, the monarchs who reigned over Europe noted the value of banking institutions. As banks existed by the grace—and occasio𒀰nally, the explไicit charters and contracts—of the ruling sovereignty, the royal powers began to take loans, often on the king’s terms, to make up for hard times at the royal treasury.

This easy access to financing led kings into gross extravagances, 𓆏costly wars, and arms races with neighboring kingdoms, not to mention crushing 🌌debt.

In 1557, Philip II of Spain managed to burden his kingdom with so much debt due to several pointless wars that he caused the world’s first national 澳洲幸运5官方开奖结果体彩网:bankruptcy—as well as the world’s second, third, and fourth, in rapid succession. These events occurred because 40% of the country’s 澳洲幸运5官方开奖结果体彩网:gross national product (GNP) went toward servicing the nation's debt.

The practice of turning a blind eye to the 澳洲幸运5官方开奖结果体彩网:creditworthiness of powerful cꦏustomers continues to haunt banks today.

Adam Smith Gives Rise to Free-Market Banking

Banking was already well-established in the British Empire when economist 澳洲幸运5官方开奖结果体彩网:Adam Smith introduced his 澳洲幸运5官方开奖结果体彩网:invisible hand theory in 1776. Empowered by his views of a self-regulating economy, moneylenders and bankers managed to limit the state’s involvement in the banking sector and the economy as a whole. This free-market 澳洲幸运5官方开奖结果体彩网:capitalism and competitive banking found fertile ground in the Ne♏w World, w🍷here the United States of America was about to emerge.

In its earliest days, the United States did not have a single currency. Banks could create a currency and distribute it to anyone who would accept it. If a bank failed, the banknotes that it had issued became worthless. A single bank robbery could crush a bank and its customers. Compounding these risks was a cyclical cash crunch that could disrupt the system at any time.

澳洲幸运5官方开奖结果体彩网:Alexander Hamilton, the first secretary of the U.S. Treasury, established a national bank that would accept member banknotes at par, thus keeping banks afloat through difficult times. After a few stops, starts, cancellations, and resurrections, this national bank created a uniform 澳洲幸运5官方开奖结果体彩网:national currency and set up a system by which national banks backed their notes by 澳洲幸运5官方开奖结果体彩网:purchasing Treasury securities, thus creating a 澳洲幸运5官方开奖结果体彩网:liquid market. The national banks then pushed out the competition through the imposition of taxes on the relatively lawless 澳洲幸运5官方开奖结果体彩网:state banks.

The damage had been done, however, as average Americans had grown to distrust banks and bankers in general. This feeling would lead the state of Texas to outlaw corporate banks with a law that stood until 1904.

Merchant Banks Come Into Power

Most of the economic duties that would have been handled by the national banking system, in addition to regular banking business like loans and 澳洲幸运5官方开奖结果体彩网:corporate finance, soon fell into the hands of large 澳洲幸运5官方开奖结果体彩网:merchant banks. During this period, which lasted into the 19🎀20s, the merchant banks parlayed their international connections into enormous political and financial🐷 power.

These banks included 澳洲幸运5官方开奖结果体彩网:Goldman Sachs; Kuhn, Loeb & Co.; and 澳洲幸运5官方开奖结果体彩网:J.P. Morgan & Co. Originally, they relied heavily on commissions from 澳洲幸运5官方开奖结果体彩网:foreign bond sales from Europe, with a small backflow of Am𒊎erican bonds trading in Europe. This allowed them to build capital.

As large industries emerged and created the need for major corporate financing, the amounts of capital required could not be provided by any single bank. 澳洲幸运5官方开奖结果体彩网:Initial public offerings (IPOs) and 澳洲幸运5官方开奖结果体彩网:bond offerings to the public became the only ꦅway to raise the amount of money needed.

Successful offerings boosted a bank’s reputation and put it in a position to ask for more to 澳洲幸运5官方开奖结果体彩网:underwrite an offer. By the late 1800s, many banks demanded a position on the boards of the companies seeking capital, and if the management proved lacking, they ran the companies themselves.

J.P. Morgan Rescues the Banking Industry

J.P. Morgan & Co. emerged at the head of the merchant banks during the late 1800s. It was connected directly to London, then the world’s financial center, and had considerable political clout in the United States.

Morgan & Co. created U.S. Steel, AT&T, and International Harvester, as well as 澳洲幸运5官方开奖结果体彩网:duopolies and near-澳洲幸运5官方开奖结果体彩网:monopolies in the railroad and shipping industries, through the revolutionary use of trusts and a disdain for the 澳洲幸运5官方开奖结果体彩网:Sherman Antitrust Act.

It remained difficult, however, for average Americans to obtain loans or other banking services. Merchant banks didn’t advertise and rarely extended credit to the “common” people. Racism was widespread. Merchant banks left consumer lending to the lesser banks, which were 𝐆still failing at an alarming rate.

The collapse in shares of a copper trust set off the 澳洲幸运5官方开奖结果体彩网:Bank Panic of 1907, with a run on banks and stock sell-offs. Without a 澳洲幸运5官方开奖结果体彩网:Federal Reserve Bank to take action to stop the panic, the task fell to J.P. Morgan personally. Morgan used his considerable clout to gather all the major players on Wall Street and persuade them to deploy the credit and capital that they controlled, just as the Fed would do today.

The End of an Era, the Birth of the Fed

Ironically, Morgan’s move ensured that no private banker would ever again wield that much power. In 1913, the U.S. government formed the Federal Reserve Bank (the Fed). Although the merchant banks influenced the structure of the Fed, they were also pushed into the background by its creation.

Even w🌼ith the establishment of the Fed, enormous financial and political power remained concentrated on Wall Street. When World War I broke out, the United States became a global lendeওr, and by the end of the war, it had replaced London as the center of the financial world.

At that point, the government decided to put some handcuffs on the banking sector. It insisted that all 澳洲幸运5官方开奖结果体彩网:debtor nations pay back their war loans—which traditionally were forgiven, especially in the case of allies—before any American institution would extend them further credit.

This slowed world trade and caused many countries to become hostile toward American goods. When the stock market crashed on 澳洲幸运5官方开奖结果体彩网:Black Tuesday in 1929, the already-sluggish world economy was knocked out. The Fed couldn’t contain the damage, which led to some 9,000 bank failures from 1929 to 1933.

New laws emerged to salvage the banking sector and restore consumer confidence. With the passage of the 澳洲幸运5官方开奖结果体彩网:Glass-Steagall Act in 1933, for example, 澳洲幸运5官方开奖结果体彩网:commercial banks were no longer allowed to speculate with consumers’ deposits, and the 澳洲幸运5官方开奖结果体彩网:Federal Deposit Insurance Corp.🍃 (FDIC) was created to insure accounts up to certain limits. The insured limit as of 2023 is $250,000 per account.

World War II and the Rise of Modern Banking

World War II may have saved the banking industry from complete destruction. For the banks and the Fed, the war required financial maneuvers involving billions of dollars. This massive financing operation created companies with huge credit needs that, in turn, spurred banks into mergers to m♒eet the demand. These huge banks spanned global markets.

More importantly, domestic banking in the United States finally settled to the point where, with the advent of deposit insurance and widespread 澳洲幸运5官方开奖结果体彩网:mortgage lending, the average cit🌞izen could have confidence in the banking system and reasonable access to credit. The modern era had arrived.

Banking Goes Digital

The most significant development in the world of banking in the late 20th and early 21st centuries has been the advent of 澳洲幸运5官方开奖结果体彩网:online banking, which in its earliest for♚ms dates back to the 1980s but really began to take off with the rise of the internet in the mid-1990s.

The growing adoption of smartphones and mobile banking apps further accelerated the trend. While many customers continue to conduct at least some of their business at brick-and-mortar banks, a 2021 J.D. Power survey found that 41% of them have gone digital-only.

The Bottom Line

Banks have come a long way from the temples of the ancient world, but𝐆 their basic business practices have not changed much. Although history has altered the finer points of the business model, a bank’s purposes are still to make loans and to protect depositors’ money.

Even today, where digital banking and financing are replacing traditional brick-and-mortar locations, banks still perf♕orm these fund🐻amental functions.