The Origins of Banking and the World’s Oldest Bank
While the oldest bank still in existence is the Banca Monte dei Paschi di Siena, founded in 1472, the concept of banking pre-dates this by many years. In fact, the first prototype bank dates back to 2000 BCE when merchants would give grain loans to farmers and traders who carried goods between cities. Later, during the Roman Empire in ancient Greece, lenders (based in the temples) began giving loans, accepting deposits and changing money. Meanwhile there is evidence of money lending in ancient China and India.
The Emergence of Modern Banking in Medieval and Renaissance Italy
Scholars have traced the roots of modern banking, however, to medieval and renaissance Italy with the most famous Italian bank being the Medici Bank, which was established in 1397 by Giovanni Medici. During the Holy Roman Empire, banking spread from Northern Italy and later to northern Europe in the 15th and 16th century.
The Evolution of Traditional Banking in the 15th to 17th Centuries
Between the 15th and 17th centuries, traditional banking expanded giving rise to our modern world’s oldest banks. During the 17th century traditional banking functions of lending money, changing money, deposits and transferring money were all combined with the issuing of bank debts which acted as a substitute for silver and gold coins. This provided a convenient and safe method of payment and a supply of money that was more responsive to commercial needs, which promoted industrial and commercial growth. As a result of this, banking became significant as a funding requirement for European countries and this in turn led to the first central banks and government regulations.
The Array of Services Provided by Modern Global Banks
Modern banks around the globe now provide a wide range of services. These services are aimed at both individuals (known as personal banking) and businesses (commercial banking). As well as providing current accounts helping people and businesses to manage their money and make easy and safe payments, banks also provide services that allow both individuals and businesses to afford growth. Personal loans have been a common service for years now, as have personal mortgages, allowing people to buy houses. While business services also include mortgages, they also provide lots of other asset-based lending.
The Influence of Asset-Based Lending in Modern Business
A good example of asset-based lending is invoice financing, where the financier will loan money based on the invoices a company has raised, bridging the financial gap between an invoice being raised and that invoice being paid. This helps businesses to better manage their cash flow, enabling more businesses to become successful. Another example of asset-based lending can be seen in property development funding, where the loan is secured against the property that is being developed. Commercial banking is suitable for a wide range of businesses across all industries, for example banks provide funding for manufacturers, enabling them to purchase the machinery, tools and equipment they need by spreading the cost of this expensive equipment over years.
The Profitable Nature of Financial Institutions and the World’s Largest Bank
Traditional and modern banks were all designed to satisfy a need for funding and financial management, a need created by individuals and businesses alike. However, financial institutions themselves are all businesses who profit greatly from the services they provide. As well as fees and ongoing charges, banks also apply interest to the amount they loan, this interest rate varies depending on the individual/bank and their credit history, and the financial institution. This means banks have the ability to make a lot of money from the services they provide, with the biggest bank in the world today being the Industrial and Commercial Bank of China Limited, which has a massive total asset value of $5.5 trillion.