History of bank

The History of Banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India, also shows evidence of money lending activity. Banking, in the modern sense of the word, can be traced to medieval and early Renaissance Italy, to the rich cities in the north such as Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe.[1] Perhaps the most famous Italian bank was the Medici bank, established by Giovanni Medici in 1397.[2]
The development of banking spread from northern Italy through Europe and a number of important innovations took place in Amsterdam during the

Dutch Republic in the 16th Late-2000s

century, and in London in the 17th century. During the 20th century, developments in telecommunications and computing caused major changes to banks operations and let banks dramatically increase in size and geographic spread. The

financial crisis caused many bank failures, including of some of the world's largest banks, and much debate about bank regHistory of economic thought
[edit] Monetary
The history of banking depends on the history of moneyand on grain-money and food cattle-money used from at least 9000 BC, two of the earliest things understood as available to barter (Davies),[3][4] Anatolian obsidian as a raw material for stone-age tools being distributed as early as 12,500 B.C., with organized trade occurring in the 9th millennia.(Cauvin;Chataigner 1998)[5][6] In Sardinia one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade of this were replaced in the 3rd millennia by trade in copper and silver. The society adapted from relating from one fixed material as valued deposits available for trade to another.[7][8][9][10] The possibility of stable economic relations was much improved with the change from the reliance on hunting and gathering of foods to agricultural practice, during periods dated as beginning sometime after 12,000 BC, at approximately 10,000 years ago in the Fertile Crescent, in northern China about 9,500 years ago, about 5,500 years ago in Mexico and approximately 4,500 in the eastern parts of the United States of the continent of the place now know as northern America.[11][12][13]

[edit] Structural

By the fifth millennium B.C. the settlements of Sumer such as Eridu were formed around a central temple.[14] In the fifth millennium people begin to build and live in the civilization of cities, providing a structure for the construction of institutions and establishments. Soon people needed safe places to store their gold, the then sadfest places were the workshops of ironsmiths or simply ironworkers who make strong iron gates and people thought that they were safe places os they used to store their gold in those worshops . the owner of the place in return gave then a receipt "i promise to pay the bearer a sum of (whatever amount of gold deposited ) and that is how the paper currency came about.[15] Tell Brak and Uruk were two early urban settlements.[16][17][18]

[edit] Earliest forms of banking

Wealth is deposited and kept in temples; in thsaurus (treasure houses) and treasuries, where safety is afforded by the will of the gods.[19][20][21][22][23] The earliest banks were used exclusively by rulers to fund the more important and larger festivals and for building expenses.[24] All secure knowledge of the origin of the abacus is lost. By the time of the ancient Hindus, Greeks and Romans a form of counting calculation was in use, initially the dust abacus and later the counting table. The term originally referred to table, bench or board.[25][26][27][28][29][30][31] [edit] -archaeological evidence Objects called tokens made of clay have been recovered from within Near East excavations dated to a period beginning 8000 B.C.E and ending 1500 B.C.E., presumed to have been made as records of the counting of agricultural produce.[32] Commencing the late fourth millennia mnemonic symbols were in use by members of temples and palaces to serve to record stocks of produce.[33] Types of records accounting for trade exchanges of payments were being made firstly about 3200.[16][34][35][36][37] A very early writing on clay tablet called the Code of Hammurabi, refers to the regulation of a banking activity of sorts within the civilization (Armstrong),[38] during the era, dating to ca. 1700 BCE, banking was well enough developed to justify laws governing banking operations. [nb 1] Later during the Achaemenid Empire (after 646 BC.[39]), further evidence is found of banking practices in the Mesopotamia region.[40]

[edit] Mesopotamia
Banking (quasi-banking [41]) as understood in the archaic state, is thought to have begun during a period as early as the second part of the fourth millennia to as late as the third to second millennia BC.[42] (ref-s'. "beginning" - 4th millennia - [2005 [43]], 4th to 3rd millennia [1996 [44]], 3rd [1985 [45]] to 2nd [2009 [46]],1st millennia [1958 [47]]) By the period from the late sixth to the early fifth centuries banking was established.[48] [edit] -temple Prior to the reign of Sargon I of Akkad (2335-2280 [49]) the occurrence of trade was limited to the internal boundaries of each city-state of Babylon and the temple located at the centre of

economic activity there-in; trade at the time for citizens external to the city was forbidden.[14][50][51] In Babylonia of 2000, people depositing gold were required to pay amounts as much as one sixth of the total deposited.[52] Both the palaces and temple are known to have provided lending and issuing from the wealth they heldthe palaces to a lesser extent. Such loans typically involved issuing seed-grain, with re-payment from the harvest. These basic social agreements were documented in clay tablets, [53] with an agreement on interest accrual.[54] The habit of depositing and storing of wealth in temples continued at least until 209 B.C., as evidenced by Antioch having ransacked or pillaged the temple of Aine in Ecbatana (Media) of gold and silver.[55][56][57][58][59] [edit] -family Cuneiform records of the house of Egibi of Babylonia describe the families financial activities dated as having occurred sometime after 1000 BC and ending sometime during the reign of Darius I, show according to one source a "lending house" (Silver 2002),a family engaging in "professional banking..." (Dandamaev et al 2004) and economic activities similar to a degree to modern deposit banking, although another states the families activities better described as entrepreneuship rather than banking (Wunsch 2007). The provision of credit is apparently also something the Murashu family participated in (Moshenskyi 2008).[60][61][62][63][64][65][66][67][68][69]

[edit] Egypt
About the time of the eighteenth century B.C.E. amounts of gold were deposited within the boundaries of the temple buildings of Egypt for reasons of security.[70] In Egypt from early times, grain having an intrinsic value as food functioned, in addition to precious metals, as money. The regional granaries were used to store and loan the grain of communities, functions similar to banking services although not the same. Under the dynastic rule of the Greek Ptolemies, the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This centralized administration was the first known governmental bank (according to de Soto),[71][72] functioning as a trade credit system that transferred payments between accounts without passing money. Documents made to show the banking of taxes were known as peptoken-records.[73] The recording of the gathering of money to buy grain in pharaoh's kingdom as ordered by Joseph, is written within Genesis of the Torah of the Holy Bible, and this money was placed within the House of the pharaoh.[74] Joseph brought with the money of the pharaoh a large amount of corn, having this then laid in the public granaries.[75]

[edit] The Levant

Main article: The Levant The temple of the Jewish people in Jerusalem contained numerous (thousands) of deposits during biblical times.[76]

The temple of Jerusalem treasury served to some extent as a depository primarily for the exclusive use of the sovereign. The largest proportion of the contents of treasuries were state wealth rather than public.[77]

[edit] India
Loans are known of from the Vedic period (beginning 1750 BC).[78][79] In ancient India during the Maurya dynasty (321 to 185 BC), an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another.[80] See Also: State Bank of India

[edit] China
Main: History of banking in China In ancient China, starting in the Qin Dynasty (221 to 206 BC), Chinese currency developed with the introduction of standardized coins that allowed easier trade across China, and led to development of letters of credit. These letters were issued by merchants who acted in ways that today we would understand as banks.[81]

[edit] Greece
Main article: Economic history of Greece and the Greek world [edit] -money-changingAncient Grecian bankers were in the first case moneychangers and pawnbrokers, present in the marketplace or festival sites, changing coinage of foreign merchants into the local currency.[82] Those thought the earliest places of storage were the money-boxes containments ( [83]) made similar to the construction of a bee-hive,[84][85] as of the Mycenae tombs of 1550-1500 BC.[86][87][88][89][90] [edit] -palace & temple-banking Private and civic entities within ancient Grecian society; especially Greek temples (Gilbart p. 3) [91] performed financial transactions. These consisted of deposits, currency exchange, validation of coinage, and loans.[92] The temples were the places where treasure was deposited for safe-keeping.[4][93] The three temples thought the most important were the temple to Artemis in Ephesus, and temple of Hera within Samos and within Delphi, the temple to Apollo.[4] The first treasury to the Apollonian temple was built before the end of the seventh century BC,[94][95] a treasury of the temple was constructed by the city of Siphnos during the sixth

century.[96] The task of keeping the deposited wealth provided to the temple of Asklepios were allotted often to the neokoros or zakoros; or at Kos the hierophylakes, who were also the mnemones or record keepers of such exchanges.[97][98] Before the destruction by Persians during the 480 invasion the Athenian Acropolis temple dedicated to Athena stored money; Pericles rebuilt a depository afterward contained within the Parthenon.[99] Athens received the Delian leagues treasury during 454.[100] The city-states of Greece after the Persian Wars in 323 produced a government and culture sufficiently organized for the birth of a private citizenship and therefore an embryonic capitalist society, allowing for the separation of wealth from exclusive state ownership to the possibility of ownership by the individual.[101][102] [edit] -non-temple & state-banking During the reign of the Ptolemies state depositories replaced temples as the location of security-deposits, [103] records exist to show this having occurred by the end of the reign of Ptolemy I (305-284).[104][105][106] The first person to have participated in ancient society to some degree as a banker was named Philostephanos (of Corinth).[107] [edit] -loans Many loans are recorded in writings from the classical age, although a very small proportion were provided by banks. Provision of these were likely an occurrence of Athens,[108] with loans known to have been provided at some time at an annual interest of 12%.[109] Within the boundaries of Athens, bankers loans are recorded as having been issued on eleven occasions altogether (Bogaert 1968).[110] A loan was made by a Temple of Athens to the state during 433-427 BCE.[111] [edit] -metic-class Many early bankers in Greek city-states belonged to the metic classification of citizenship.[112][113] A slave named Pasion, for a time owned by Archestratos and Antisthenes who were partners of a banking firm in Peiraieus, was at some time Athens' most important banker. Having gained relative freedom to the metic class he was subsequently involved in banking from 394 BC, a business inherited by his slave named Phormio.[93][114][115][116][117] [edit] -banking locations As the need for new buildings to house operations increased, construction of these places within the cities began around the courtyards of the agora (markets).[118] In the late 3rd and 2nd century BC, the Aegean island of Delos, became a prominent banking center.[119] During the second century, there were for certain three banks and one temple depository within the city.[23] Thirty five Hellenistic cities included private banks during the 2nd century (Roberts - p. 130).[23]

Of the settlements of the Greco-Roman world of the 1st century AD, three were of pronounced wealth and centres of banking, Athens, Corinth and Patras.[120][121][122][123][124] [edit] -writings Trapezitica is the first source documenting banking (de Soto - p. 41).[4] The speeches of Demosthenes contain numerous references to the issuing of credit (Millett p. 5).[110] Xenophon is credited to have made the first suggestion of the creation of an organisation known in the modern definition as a joint-stock bank in On Revenues written circa 353 B.C.[91][125] [edit] Asia Minor Main article: Asia Minor From the fourth millennia previously agricultural settlements began administrative activities.[126][127][128][129] The temple of Artemis at Ephesus was the largest depository of Asia.[76][130][131][132] A pothoard dated to 600 B.C. was found in excavations by the British Museum during the year after 1904.[133] During the time at the cessation of the first Mithridatic war the entire debt record at the time being held, was annulled by the council.[76][134] Mark Anthony is recorded to have stolen from the deposits on an occasion.[76] The temple served as a depository for Aristotle, Caesar, Dio Chrysostomus,Plautus,Plutarch,Strabo and Xenophon.[135] The temple to Apollo in Didyma was constructed sometime in the sixth century. A large sum of gold was deposited within the treasury at the time by king Croesus.[136][137]

[edit] Rome

Gold coin produced by the Roman Imperial Mint The Roman Empire inherited the spirit of capitalism from Greece (Parker).[101] During the time of the Empire, public deposits gradually ceased to be held in temples, and instead were held in private depositories.[103] The earliest recorded evidence showing banking practices is given by one source as during 325 B.C.E. On account of being in debt, the Plebians were required to borrow money. At that time newly appointed quinqueviri mensarii were commissioned to provide services to those that had security to provide in exchange for money from the public treasury.[138] Another

source has the shops of banking of Ancient Rome firstly opening in the public forums during the period 318 to 310 B.C.E.[139] In early Ancient Rome deposit bankers were known as argentarius and at a later time (from the second century anno domini onward) as nummularius (Andreau 1999 p. 2)[139] or mensarii.[138] The banking-houses were known as Taberae Argentarioe and Mensoe Numularioe.[91] Bankers operated from either appointment by the government therefore tasked with collecting taxes, or were instead independent and practicing banking for individual ends.[91] Statutes (125/126 AD) of the Empire described "letter from Caesar to Quietus" show rental monies to be collected from persons using land belonging to a temple and given to the temple treasurer, as decreed by Mettius Modestus governor of Lycia and Pamphylia.[140][141] Money-lenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome that of the Imperial Mint.[142] The Roman empire at some time formalized the administrative aspect of banking and instituted greater regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive. The development of Roman banks was limited, however, by the Roman preference for cash transactions. During the reign of the Roman emperor Gallienus (260268 AD), there was a temporary breakdown of the Roman banking system after the banks rejected the flakes of copper produced by his mints. With the ascent of Christianity, banking became subject to additional restrictions, as the charging of interest was seen as immoral. After the fall of Rome, banking temporarily ended in Europe and was not revived until the time of the crusades.[citation needed]

[edit] Monopolies
In the fourth century monopolies existed in Byzantium and in the city of Olbia in Sardinia.[143][144]

[edit] Religious restrictions on interest

Most early religious systems in the ancient Near East, and the secular codes arising from them, did not forbid usury. These societies regarded inanimate matter as alive, like plants, animals and people, and capable of reproducing itself. Hence if you lent 'food money', or monetary tokens of any kind, it was legitimate to charge interest.[145] Food money in the shape of olives, dates, seeds or animals was lent out as early as c. 5000 BCE, if not earlier. Among the Mesopotamians, Hittites, Phoenicians and Egyptians, interest was legal and often fixed by the state.[146]

[edit] Judaism
Main articles: Loans and interest in Judaism and Jewish views of poverty, wealth and charity

The Torah and later sections of the Hebrew Bible criticize interest-taking, but interpretations of the Biblical prohibition vary. One common understanding is that Jews are forbidden to charge interest upon loans made to other Jews, but obliged to charge interest on transactions with non-Jews, or Gentiles. However, the Hebrew Bible itself gives numerous examples where this provision was evaded. Deuteronomy 23:19 Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. Deuteronomy 23:20 Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it.[147]

Christ drives the Usurers out of the Temple, a woodcut by Lucas Cranach the Elder in Passionary of Christ and Antichrist.[148] Israelites were forbidden to charge interest on loans made to other Israelites, but allowed to charge interest on transactions with non-Israelites, as the latter were often amongst the Israelites for the purpose of business anyway, but in general, it was seen as advantageous to avoid debt at all, to avoid being bound to someone else. Debt was to be avoided and not used to finance consumption, but only when in need. However, laws against usury were among many the prophets condemn the people for breaking.[149]

[edit] Christianity
Main article: Usury Originally, the charging of interest known as usury was banned by Christian churches meaning the charging of interest at any rate was banned. This included charging a fee for the use of money, such as at a bureau de change. However over time the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law.[citation
needed]

[edit] Islam
Main article: Riba

In Islam it is strictly prohibited to take interest; the Quran strictly prohibits lending money on Interest. "O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful" (3:130) "and Allah has permitted trade and has forbidden interest" (2:275). Riba (usury)) is forbidden in Islamic economic jurisprudence fiqh. Islamic jurists discuss two types of riba: an increase in capital with no services provided, which the Qur'an prohibits and commodity exchanges in unequal quantities, which the Sunnah prohibits.

[edit] Medieval Europe

Banking, in the modern sense of the word, is traceable to medieval and early Renaissance Italy, to rich cities in the north such as Florence, Venice, and Genoa.

[edit] Emergence of merchant banks

Main article: Merchant bank The original banks were "merchant banks" that Italian grain merchants first invented in the Middle Ages. As Lombardy merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient practices from the Middle and Far East silk routes. Originally intended to finance long trading journeys, they applied these methods to finance grain production and trading. Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy, alongside local traders, and set up their benches to trade in crops. They had one great advantage over the locals. Christians were strictly forbidden the sin of usury, defined as lending at interest (Islam makes similar condemnations of usury). The Jewish newcomers, on the other hand, could lend to farmers against crops in the field, a high-risk loan at what would have been considered usurious rates by the Church; but the Jews were not subject to the Church's dictates.[citation needed] In this way they could secure the grain-sale rights against the eventual harvest. They then began to advance payment against the future delivery of grain shipped to distant ports. In both cases they made their profit from the present discount against the future price. This two-handed trade was time-consuming and soon there arose a class of merchants who were trading grain debt instead of grain. The Jewish trader performed both financing (credit) and underwriting (insurance) functions. Financing took the form of a crop loan at the beginning of the growing season, which allowed a farmer to develop and manufacture (through seeding, growing, weeding, and harvesting) his annual crop. Underwriting in the form of a crop, or commodity, insurance guaranteed the delivery of the crop to its buyer, typically a merchant wholesaler. In addition, traders performed the merchant function by making arrangements to supply the buyer of the crop through alternative sourcesgrain stores or alternate markets, for instancein the event of crop failure. He could also keep the farmer (or other commodity producer) in business during a drought or other crop failure, through the issuance of a crop (or commodity) insurance against the hazard of failure of his crop.

Merchant banking progressed from financing trade on one's own behalf to settling trades for others and then to holding deposits for settlement of "billette" or notes written by the people who were still brokering the actual grain. And so the merchant's "benches" (bank is derived from the Italian for bench, banca, as in a counter) in the great grain markets became centers for holding money against a bill (billette, a note, a letter of formal exchange, later a bill of exchange and later still a cheque). These deposited funds were intended to be held for the settlement of grain trades, but often were used for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian banca rotta, or broken bench, which is what happened when someone lost his traders' deposits. Being "broke" has the same connotation.

[edit] Crusades
In the 12th century, the need to transfer large sums of money to finance the Crusades stimulated the re-emergence of banking in western Europe. In 1162, King Henry the II levied a tax to support the crusadesthe first of a series of taxes levied by Henry over the years with the same objective. The Templars and Hospitallers acted as Henry's bankers in the Holy Land. The Templars' wide flung, large land holdings across Europe also emerged in the 11001300 time frame as the beginning of Europe-wide banking, as their practice was to take in local currency, for which a demand note would be given that would be good at any of their castles across Europe, allowing movement of money without the usual risk of robbery while traveling.

[edit] Discounting of interest

A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed; in short, selling an "interest" to them in a specific trade, thus overcoming the usury objection. Once again this merely developed what was an ancient method of financing long-distance transport of goods. Medieval trade fairs, such as the one in Hamburg, contributed to the growth of banking in a curious way: moneychangers issued documents redeemable at other fairs, in exchange for hard currency. These documents could be cashed at another fair in a different country or at a future fair in the same location. If redeemable at a future date, they would often be discounted by an amount comparable to a rate of interest. Eventually, these documents evolved into bills of exchange, which could be redeemed at any office of the issuing banker. These bills made it possible to transfer large sums of money without the complications of hauling large chests of gold and hiring armed guards to protect the gold from thieves.

[edit] Foreign exchange contracts

In 1156, in Genoa, occurred the earliest known foreign exchange contract. Two brothers borrowed 115 Genoese pounds and agreed to reimburse the bank's agents in Constantinople the sum of 460 bezants one month after their arrival in that city. In the following century the use of such contracts grew rapidly, particularly since profits from time differences were seen as not infringing canon laws against usury.

[edit] Italian bankers

The first bank to be established was established in Venice with guarantee from the State in 1157.[91][150][151] According to Macardy this was due to the commercial agency of the Venetians, acting in the interest of the Crusaders of Pope Urban the Second.[152] [153] The reason is given elsewhere as due to costs of the expansion of the empire of Duke Vital Mitchel II, and to relieve the subsequent financial burden on the republic [91] "a forced loan" was made necessary. To this end the Chamber of Loans, was created to manage the affairs of the forced loan, as to the loans repayment at four percent interest. [74] Changes in the enterprises of the Chamber, firstly by the commencing of use of discounting [154] exchanges and later by the receipt of deposits,[155] there developed the functioning of the organisation into The Bank of Venice, with an initial capital of 5,000,000 ducats. [156] In any case, banking practice proper began in the mid-parts of the 12th century,[157] and continued until the bank was caused to cease to operate during the French invasion of 1797. The bank was the first national bank to have been established within the boundaries of Europe.[74] There were banking failures from 1255-62. [158] In the middle of the 13th century, groups of Italian Christians, particularly the Cahorsins and Lombards, invented legal fictions to get around the ban on Christian usury;[159] for example, one method of effecting a loan with interest was to offer money without interest, but also require that the loan is insured against possible loss or injury, and/or delays in repayment (see contractum trinius).[159] The Christians effecting these legal fictions became known as the pope's usurers, and reduced the importance of the Jews to European monarchs;[159] later, in the Middle Ages, a distinction evolved between things that were consumable (such as food and fuel) and those that were not, with usury permitted on loans that involved the latter.[159] Florence inhabited the most powerful of families engaged in banking. Amongst all of these including the Acciaiuoli and Mozzi, [160] the Bardi and Peruzzi families perhaps dominated, establishing branches in many other parts of Europe.[1] Probably the most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397 [161] and continuing until 1494.[162] (Banca Monte dei Paschi di Siena SPA (MPS) Italy, is in fact the oldest banking organisation to have surviving banking-operations, or services). It was the Italian bankers that would take their place and by 1327, Avignon had 43 branches of Italian banking houses. In 1347, Edward III of England defaulted on loans. Later there was the bankruptcy of the Bardi (1343 [160]) and Peruzzi (1346 [160]). The accompanying growth of Italian banking in France was the start of the Lombard moneychangers in Europe, who moved from city to city along the busy pilgrim routes important for trade. Key cities in this period were Cahors, the birthplace of Pope John XXII, and Figeac.

Of Usury, from Brant's Stultifera Navis (the Ship of Fools); woodcut attributed to Albrecht Drer By the later Middle Ages, Christian Merchants who lent money with interest were without opposition, and the Jews lost their privileged position as money-lenders;[159] After 1400, political forces did, in fact, somewhat turn against the methods of the Italian free enterprise bankers, In 1401 King Martin I of Aragon had some of these bankers expelled. In 1403, Henry IV of England prohibited them from taking profits in any way in his kingdom. In 1409, Flanders imprisoned and then expelled Genoese bankers. In 1410, all Italian merchants were expelled from Paris. In 1407, the Bank of Saint George,[156] the first state-bank of deposit,[119][163] was founded in Genoa and was to dominate business in the Mediterranean.[119]

[edit] Silver crisis

By the 1390s silver was in short supply all over Europe, except in Venice. The silver mines at Kutn Hora had begun to decline in the 1370s, and finally closed down after being sacked by King Sigismund in 1422. By 1450 almost all of the mints of northwest Europe had closed down for lack of silver. The last money-changer in the major French port of Dieppe went out of business in 1446. In 1455 the Turks overran the Serbian silver mines, and in 1460 captured the last Bosnian mine. As currency became scarce, several Venetian banks failed as did the Strozzi bank of Florence, the second largest in the city.

[edit] Expansion
During this time Geneva is (according to one source) the most important and active in banking within the central Europe region.[164]

[edit] Italy
In the times between 1527 - 1572 the Genoese people produced a number of important banking family groups, the Grimaldi, Spinola and Pallavicino families were especially

influential and wealthy, also the Doria, although perhaps less influential, and the Pinelli and the Lomellini.[165][166]

[edit] Spain and the Ottoman Empire

In 1401 the magistrates of Barcelona established in the city the first replication of the Venetian model of exchange and deposit, Taula de Cambi - the Table of Exchange.[156][167] Halil nalcik suggests that, in the sixteenth century, Marrano Jews (Doa Gracia from House of Mendes) fleeing from Iberia introduced the techniques of European capitalism, banking and even the mercantilist concept of state economy to the Ottoman empire.[168] In the sixteenth century, the leading financiers in Istanbul were Greeks and Jews. Many of the Jewish financiers were Marranos who had fled from Iberia during the period leading up to the expulsion of Jews from Spain. Some of these families brought great fortunes with them.[169] The most notable of the Jewish banking families in the sixteenth century Ottoman Empire was the Marrano banking house of Mendes, which moved to Istanbul in 1552, under the protection of Sultan Suleyman the Magnificent. When Alvaro Mendes arrived in Istanbul in 1588, he is reported to have brought with him 85,000 gold ducats.[170] The Mends family soon acquired a dominating position in the state finances of the Ottoman Empire and in commerce with Europe.[171] They thrived in Baghdad during the eighteenth and nineteenth centuries under Ottoman rule, performing critical commercial functions such as moneylending and banking.[172] Like the Armenians, the Jews could engage in necessary commercial activities, such as moneylending and banking, that were proscribed for Moslems under Islamic law.

[edit] Emergence of the Court Jew

Main article: Court Jew

Joseph Suss Oppenheimer, who served Karl Alexander, Duke of Wrttemberg Court Jews were Jewish bankers or businessmen who lent money and handled the finances of some of the Christian European noble houses, primarily in the seventeenth and eighteenth centuries.[173] Court Jews were precursors to the modern financier or Secretary of the Treasury.[173] Their jobs included raising revenues by tax farming, negotiating loans, master of the mint, creating new sources for revenue, negotiating loans, float ing debentures, devising new taxes. and supplying the military.[173][174] In addition, the Court Jew acted as

personal bankers for nobility: he raised money to cover the noble's personal diplomacy and his extravagances.[174] Court Jews were skilled administrators and businessmen who received privileges in return for their services. They were most commonly found in Germany, Holland, and Austria, but also in Denmark, England, Hungary, Italy, Poland, Lithuania, Portugal, and Spain.[175][176] According to Dimont, virtually every duchy, principality, and palatinate in the Holy Roman Empire had a Court Jew.[173]

[edit] to Germany and Poland

The Fuggers were financiers from 1485 to 1560 [177] and are known as a particularly important banking family born to South Germany.[178][179] Berenberg Bank is the oldest private bank in Germany, established in 1590 by Dutch brothers, Hans and Paul Berenberg in Hamburg.[180]

[edit] Holland
Further information: Financial history of the Dutch Republic

A painting of the old town hall in Amsterdam where the bank was founded in 1609. Throughout 17th century, precious metals from the New World, Japan and other locales have been channeled into Europe, with corresponding price increases. Thanks to the free coinage, the Bank of Amsterdam, and the heightened trade and commerce, Netherlands attracted even more coin and bullion. These concepts of Fractional-reserve banking and payment systems went on and spread to England and elsewhere.[181]

[edit] England
Further information: Banking in the United Kingdom In the City of London there weren't any banking houses operating in a manner recognized as so today until the 17th century, [182][183] although the London Royal Exchange was established in 1565.

[edit] the 17th and 18th centuries

By the end of the 16th century and during the 17th, the traditional banking functions of accepting deposits, moneylending, money changing, and transferring funds were combined with the issuance of bank debt that served as a substitute for gold and silver coins. New banking practices promoted commercial and industrial growth by providing a safe and convenient means of payment and a money supply more responsive to commercial needs, as well as by "discounting" business debt. By the end of the 17th century, banking was also becoming important for the funding requirements of the relatively new and combative European states. This would lead on to government regulations and the first central banks. The success of the new banking techniques and practices in Amsterdam and also the thriving trade city of Antwerp help spread the concepts and ideas to London and helped the developments elsewhere in Europe.

[edit] Goldsmiths of London

The main developers of banking in London were the goldsmiths, who transformed from simple artisans to becoming depositories of gold and silver holdings. Events such at the appropriation of 200,000 of private money by King Charles I from the royal mint, in 1640 caused merchants to lose trust in the existing institutions and drive them to find more trusted alternatives such as the goldsmiths. Goldsmiths soon found themselves with money they had no immediate use for, and they began to lend it out at interest to merchants and the government. Finding substantial profit in this business, they began to solicit deposits and pay interest on them. The goldsmiths eventually discovered that the deposit receipts they provided were passing from person to person in lieu of payment in coin. This prompted them to begin lending paper receipts rather than coins. By promoting acceptance of the receipts as a means of payment, the goldsmiths discovered they could lend more than the gold and silver coin they had on hand, a practice that became known as fractional-reserve banking.[184] See also: Goldsmiths University (London), Goldsmith

[edit] Debt as a new kind of money

These practices created a new kind of "money" that was actually debt, that is, goldsmiths' debt rather than silver or gold coin, a commodity that had been regulated and controlled by the monarchy. This development required the acceptance in trade of the goldsmiths' promissory notes, payable on demand. Acceptance in turn required a general belief that coin would be available; and a fractional reserve normally served this purpose. Acceptance also required that the holders of debt be able legally to enforce an unconditional right to payment; it required that the notes (as well as drafts) be negotiable instruments. The concept of negotiability had emerged in fits and starts in European money markets, but it was well developed by the 17th century. Nevertheless, an act of Parliament was required in the early 18th century (1704) to overrule court decisions holding that the gold smiths notes, despite the "customs of "merchants, were not negotiable.[184]

The sealing of the Bank of England Charter (1694) Meanwhile, the credit of the British Crown had been diminished by default in 1672. The monarchy's urgent need for funds at rates lower than those charged by the goldsmiths, and the example of the public Bank of Amsterdam, which had been able to make an ample supply of credit available at low interest rates, led in 1694 to the establishment of the Bank of England. The Bank of England succeeded in raising money for the government at relatively low rates.

[edit] Development of central banking

Further information: Central bank The Sveriges Riksbank was the first central bank of the world, established in 1668.[185] The functioning of the bank in the capacity of monetary exchange was modelled after the Bank of Amsterdam.[186] The Bank of England was established in 1694 and is the second oldest in the world. This was founded specifically to assist the English government in funding the continued war [187] against France.[188][189][190] The Bank of France opened on 20 February 1800, and commenced to issue paper money on 14 April 1803.[191][192] [edit] North America Main article: History of banking in the United States The administration of the government of the State of Massachusetts issued the first bill of credit in the history of America in 1690. The Colman bank is mentioned as an early idea made by John Colman during 1715. The bank of North America was established in 1784, during 1863 the national banking system was made.[193][194][195][196][197]

[edit] Royal banking

During the 13th century and early fourteenth both the French and English monarchies were still using temple banking.[198][199] Early in the reign of George the IIIrd, sometime in the eighteenth century, the monarchy began to bank with a private bank known as Coutts.[200][201][202][203] The French kings were using banking houses of Geneva sometime after

the beginning of the French Revolution in 1789, a process of transition with a footing sometime during 1713.[204][205]

[edit] Removal of religious restrictions on earning interest

The rise of Protestantism, freed many European Christians from Rome's dictates against usury. In the late 18th century, Protestant merchant families began to move into banking, especially in trading countries such as the United Kingdom (Barings), Germany (Schroders) and the Netherlands (Hope & Co.) At the same time, new types of financial activities broadened the scope of banking far beyond its origins. The merchant-banking families dealt in everything from underwriting bonds to originating foreign loans. For instance, bullion trading and bond issuance were two of the specialties of the Rothschilds. In 1803, Barings teamed with Hope & Co. to facilitate the Louisiana Purchase.

[edit] late 18th and 19th centuries

In the late eighteenth and nineteenth century, spurred at first by financing required for the Napoleonic wars and then by the expansion of railroads in Europe, banks evolved for the first time to operate by way of commerce, that is to accept demand deposits and provide business loans, instead of only functioning for the good of the state. Before 1776 there were three commercial banks on the landmass known then as America.[206][207][208] Commercial Banking Co of Scotland was founded during 1810, the Bank of New South Wales is dated to 1817.[209][210][211][212] Jews were founders and leaders of many of the important early European banks, as well as significant banks in the United States. [173][213][214] Several Jewish bankers became extremely influential, successfully competing with non-Jewish banking houses in the floating of government loans.[215]

[edit] Europe
Rothschild family banking businesses pioneered international high finance during the industrialisation of Europe and were instrumental in supporting railway systems across the world and in complex government financing for projects such as the Suez Canal. The family bought up a large proportion of the property in Mayfair, London. Major businesses directly founded by Rothschild family capital include Alliance Assurance (1824) (now Royal & SunAlliance); Chemin de Fer du Nord (1845); Rio Tinto Group (1873); Socit Le Nickel (1880) (now Eramet); and Imtal (1962) (now Imerys). The Rothschilds financed the founding of De Beers, as well as Cecil Rhodes on his expeditions in Africa and the creation of the colony of Rhodesia. From the late 1880s onwards, the family controlled the Rio Tinto mining company.[216]

J.P. Morgan established J.P. Morgan & Co. as one of the worlds major banks by the end of the 19th century The Japanese government approached the London and Paris families for funding during the Russo-Japanese War. The London consortium's issue of Japanese war bonds would total 11.5 million (at 1907 currency rates).[217]

[edit] the United States of America

See also: History of investment banking in the United States In the 19th century, the rise of trade and industry in the US led to powerful new private merchant banks, culminating in J.P. Morgan & Co. During the 20th century, however, the financial world began to outgrow the resources of family-owned and other forms of privateequity banking. Corporations came to dominate the banking business. For the same reasons, merchant banking activities became just one area of interest for modern banks.[218]

[edit] Globalisation
In the late 19th century there was a massive growth in the banking industry. Banks played a key role in moving from gold and silver based coinage to paper money, redeemable against the bank's holdings. Within the new system of ownership and investment, the state's role as an economic factor grew substantially.[219]

[edit] 20th century

The first decade of the 20th century saw the Panic of 1907 in the US, which led to numerous runs on banks and became known as the bankers panic.

[edit] 1930s Great Depression

Crowd at New York's American Union Bank during a bank run early in the Great Depression. During the Crash of 1929 preceding the Great Depression, margin requirements were only 10%.[220] Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans, which could not be paid back. Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets.[221] Outstanding debts became heavier, because prices and incomes fell by 2050% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday.[222] Bank failures snowballed as desperate bankers called in loans that borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending.[221] Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. In all, over 9,000 banks failed during the 1930s. In response, many countries significantly increased financial regulation. The U.S. established the Securities and Exchange Commission in 1933, and passed the GlassSteagall Act, which separated investment banking and commercial banking. This was to avoid more risky investment banking activities from ever again causing commercial bank failures.

[edit] World Bank and the development of payment technology

During the post second world war period and with the introduction of the Bretton Woods system in 1944, two organizations were created: the International Monetary Fund (IMF) and the World Bank. Encouraged by these institutions, commercial banks started to lend to sovereign states in the third world. This was at the same time as inflation started to rise in the west. The Gold standard was eventually abandoned in 1971 and a number of the banks were caught out and became bankrupt due to third world country debt defaults.

1969 ABC news report on the introduction of ATMs in Sydney. People could only receive $25 at a time and the bank card was sent back to the user at a later date. This was also a time of increasing use of technology in retail banking. In 1959, banks agreed on a standard for machine readable characters (MICR) that was patented in the United States for use with cheques, which led to the first automated reader-sorter machines. In the 1960s, the first Automated Teller Machines (ATM) or Cash machines were developed and first machines started to appear by the end of the decade. Banks started to become heavy investors in computer technology to automate much of the manual processing, which began a shift by banks from large clerical staffs to new automated systems. By the 1970s the first payment systems started to be develop that would lead to electronic payment systems for both international and domestic payments. The international SWIFT payment network was established in 1973 and domestic payment systems were developed around the world by banks working together with governments.

[edit] 1980s deregulation and globalisation

Bishopsgate in the City of London

Global banking and capital market services proliferated during the 1980s after deregulation of financial markets in a number of countries. The 1986 'Big Bang' in London allowing banks to access capital markets in new ways, which led to significant changes to the way banks operated and accessed capital. It also started a trend where retail banks started to acquire investment banks and stock brokers creating universal banks that offered a wide range of banking services. The trend also spread to the US after much of the GlassSteagall Act was repealed in the 1980s, this saw US retail banks embark on big rounds of mergers and acquisitions and also engage in investment banking activities. Financial services continued to grow through the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish. Interest rates in the United States declined from about 15% for two-year U.S. Treasury notes to about 5% during the 20-year period, and financial assets grew then at a rate approximately twice the rate of the world economy. This period saw a significant internationalization of financial markets. The increase of U.S. Foreign investments from Japan not only provided the funds to corporations in the U.S., but also helped finance the federal government. The dominance of U.S. financial markets[citation needed] was disappearing and there was an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which enabled them to expand their activities. Thus, American corporations and banks started seeking investment opportunities abroad, prompting the development in the U.S. of mutual funds specializing in trading in foreign stock markets. Such growing internationalization and opportunity in financial services changed the competitive landscape, as now many banks would demonstrated a preference for the universal banking model prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a one-stop supplier of both retail and wholesale financial services.

[edit] 21st century

The early 2000s were marked by consolidation of existing banks and entrance into the market of other financial intermediaries: non-bank financial institution. Large corporate players were beginning to find their way into the financial service community, offering competition to established banks. The main services offered included insurances, pension, mutual, money market and hedge funds, loans and credits and securities. Indeed, by the end of 2001 the market capitalisation of the worlds 15 largest financial services providers included four nonbanks.[citation needed] The process of financial innovation advanced enormously in the first decade of the 21 century increasing the importance and profitability of nonbank finance. Such profitability priorly restricted to the non-banking industry, has prompted the Office of the Comptroller of the Currency (OCC) to encourage banks to explore other financial instruments, diversifying banks' business as well as improving banking economic health. Hence, as the distinct

financial instruments are being explored and adopted by both the banking and non-banking industries, the distinction between different financial institutions is gradually vanishing. The first decade of the 21st century also saw the culmination of the technical innovation in banking over the previous 30 years and saw a major shift away from traditional banking to internet banking.

[edit] Late-2000s financial crisis

2007 bank run on Northern Rock, a UK bank The Late-2000s financial crisis caused significant stress on banks around the world. The failure of a large number of major banks resulted in government bail-outs. The collapse and fire sale of Bear Stearns to JP Morgan Chase in March 2008 and the collapse of Lehman Brothers in September that same year led to a credit crunch and global banking crises. In response governments around the world bailed-out, nationalised or arranged fire sales for a large number of major banks. Starting with the Irish government on 29 September 2008,[223] governments around the world provided wholesale guarantees to underwriting banks to avoid panic of systemic failure to the whole banking system. These events spawned the term 'too big to fail' and resulted in a lot of discussion about the moral hazard of these actions.

[edit] Major events in banking history

Florentine banking The Medicis and Pittis among others. 11001300 Knights Templar run earliest Euro wide /Mideast banking. 15421551 The Great Debasement refers to the English Crowns policy of coement during the reigns of Henry VIII and Edward VI. 1553 First joint-stock company, the Company of Merchant Adventurers to New Lands, is chartered in London. 1602 The Amsterdam Stock Exchange was established by the Dutch East India Company for dealings in its printed stocks and bonds. 1609 The Amsterdamsche Wisselbank (Amsterdam Exchange Bank) was founded. 1656 - The first European bank to use banknotes opened in Sweden for private clientele, during 1668 the institution converted to a public bank.[224][225][226] 1690s The Massachusetts Bay Colony was the first of the Thirteen Colonies to issue permanently circulating banknotes. 1694 The Bank of England was set up to supply money to the King. 1695 The Parliament of Scotland creates the Bank of Scotland. 1716 John Law opens Banque Gnrale

1717 Master of the Royal Mint Sir Isaac Newton established a new mint ratio between silver and gold that had the effect of driving silver out of circulation (bimetalism)and putting Britain on a gold standard. 1720 The South Sea Bubble and John Law's Mississippi Scheme, which caused a European financial crisis and forced many bankers out of business. 1775 The first building society, Ketley's Building Society, was established in Birmingham, England. 1782 The Bank of North America opens.[227] 1791 The First Bank of the United States was a bank chartered by the United States Congress. The charter was for 20 years. 1800 the Rothschild family establishes European wide banking. 1800 (January 18) Napolean Bonaparte founds the Bank of France.[191][228] 1816 The Second Bank of the United States was chartered five years after the First Bank of the United States lost its charter. This charter was also for 20 years. The bank was created to finance the country in the aftermath of the War of 1812. 1817 - The New York Stock and Exchange Board is established.[227] 1818 - the first savings bank of Paris [229] 1862 To finance the American Civil War, the federal government under U.S. President Abraham Lincoln issued a legal tender paper money, the "greenbacks". 1870 - Establishment of the Deutsche Bank [228] 1874 The Specie Payment Resumption Act provided for the redemption of United States paper currency ("greenbacks"), in gold, beginning in 1879. 1913 The Federal Reserve Act created the Federal Reserve System, the central banking system of the United States of America, and granted it the legal authority to issue legal tender. 193033 In the wake of the Wall Street Crash of 1929, 9,000 banks close, wiping out a third of the money supply in the United States.[230] 1933 Executive Order 6102 signed by U.S. President Franklin D. Roosevelt forbade ownership of Gold Coin, Gold Bullion, and Gold Certificates by U.S. citizens beyond a certain amount, effectively ending the convertibility of US dollars into gold. 1971 The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon which canceled the direct convertibility of the United States dollar to gold by foreign nations. This essentially ended the existing Bretton Woods system of international financial exchange. 1986 The "Big Bang" (deregulation of London financial markets) served as a catalyst to reaffirm London's position as a global centre of world banking. 2007 Start of the Late-2000s financial crisis that saw the a credit crunch that led to the failure and bail-out of a large number of the worlds biggest banks. 2008 Washington Mutual collapses. It was the largest bank failure in history

ulation

history of bank
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers that have capital deficits to customers with capital surpluses.[citation
needed]

Due to their critical status within the financial system and the economy[citation needed] generally, banks are highly regulated in most countries. Most banks operate under a system known as fractional reserve banking where they hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements which are based on an international set of capital standards, known as the Basel Accords. The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.[1]

Contents
[show]

[edit] History
Personal Finance

Credit and debit

Pawnbroker Student loan

Employment contract

Salary Wage

Salary packaging Employee stock option Employee benefit Retirement

Pension

Defined benefit

Defined contribution Social security Business plan Corporate action Personal budget

Financial planner Financial adviser Stockbroker Estate planning See also

Financial independence

Banks and credit unions

Cooperatives

v t e

Main article: History of banking Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe.[2] One of the most famous Italian banks was the Medici Bank, set up by Giovanni di Bicci de' Medici in 1397.[3] The earliest known state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy.[4]

[edit] Origin of the word

The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German banc, bank "bench, counter". Benches were used as desks or exchange counters during the Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths.[5] One of the oldest items found showing money-changing activity is a silver Greek drachm coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350325 BC, presented in the British Museum in London. The coin shows a banker's table (trapeza) laden with coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza () means both a table and a bank. Another possible origin of the word is from the Sanskrit words ( 'onka' (calculation) = byaya ) 'byaya' (expense) and

-onka. This word still survives in Bangla, which is one of Sanskrit's child languages. + = . Such expense calculations were the biggest part of mathmetical treatises written by Indian mathmeticians as early as 500 B.C.

[edit] Definition
The definition of a bank varies from country to country. See the relevant country page (below) for more information. Under English common law, a banker is defined as a person who carries on the business of banking, which is specified as:[6]

conducting current accounts for his customers, paying cheques drawn on him, and collecting cheques for his customers.

Banco de Venezuela in Coro. In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instruments, including cheques, and this Act contains a statutory definition of the term banker: banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is organized or regulated. The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purposes of entry regulating and supervising

banks rather than regulating the actual business of banking. However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions:

"banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation). "banking business" means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period; 2. paying or collecting checks drawn by or paid in by customers.[7] Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect checks.[8]

[edit] Banking
[edit] Standard activities

Large door to an old bank vault. Banks act as payment agents by conducting checking or current accounts for customers, paying checks drawn by customers on the bank, and collecting checks deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as Automated Clearing House (ACH), Wire transfers or telegraphic transfer, EFTPOS, and automated teller machine (ATM). Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide different payment services, and a bank account is considered indispensable by most businesses and individuals. Non-banks that provide payment services such as remittance companies are normally not considered as an adequate substitute for a bank account.

[edit] Channels
Banks offer many different channels to access their banking and other services:

Automated Teller Machines A branch is a retail location Call center Mail: most banks accept cheque deposits via mail and use mail to communicate to their customers, e.g. by sending out statements Mobile banking is a method of using one's mobile phone to conduct banking transactions Online banking is a term used for performing transactions, payments etc. over the Internet Relationship Managers, mostly for private banking or business banking, often visiting customers at their homes or businesses Telephone banking is a service which allows its customers to perform transactions over the telephone with automated attendant or when requested with telephone operator Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine), or via a video conference enabled bank branch.clarification

[edit] Business model

A bank can generate revenue in a variety of different ways including interest, transaction fees and financial advice. The main method is via charging interest on the capital it lends out to customers.[citation needed] The bank profits from the difference between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle. Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance. In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. First, this includes the Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance houses. Merging banking, investment, and insurance functions allows traditional banks to respond to increasing consumer demands for "one-stop shopping" by enabling crossselling of products (which, the banks hope, will also increase profitability). Second, they have expanded the use of risk-based pricing from business lending to consumer lending, which means charging higher interest rates to those customers that are considered to

be a higher credit risk and thus increased chance of default on loans. This helps to offset the losses from bad loans, lowers the price of loans to those who have better credit histories, and offers credit products to high risk customers who would otherwise be denied credit. Third, they have sought to increase the methods of payment processing available to the general public and business clients. These products include debit cards, prepaid cards, smart cards, and credit cards. They make it easier for consumers to conveniently make transactions and smooth their consumption over time (in some countries with underdeveloped financial systems, it is still common to deal strictly in cash, including carrying suitcases filled with cash to purchase a home). However, with convenience of easy credit, there is also increased risk that consumers will mismanage their financial resources and accumulate excessive debt. Banks make money from card products through interest payments and fees charged to consumers and transaction fees to companies that accept the credit- debit - cards. This helps in making profit and facilitates economic development as a whole.[9]

[edit] Products

A former building society, now a modern retail bank in Leeds, West Yorkshire.

An interior of a branch of National Westminster Bank on Castle Street, Liverpool [edit] Retail banking

Checking account Savings account Money market account Certificate of deposit (CD) Individual retirement account (IRA) Credit card

Debit card Mortgage Home equity loan Mutual fund Personal loan Time deposits ATM Card

[edit] Business (or commercial/investment) banking

Business loan Capital raising (Equity / Debt / Hybrids) Mezzanine finance Project finance Revolving credit Risk management (FX, interest rates, commodities, derivatives) Term loan Cash Management Services (Lock box, Remote Deposit Capture, Merchant Processing)

[edit] Risk and capital

Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Some of the main risks faced by banks include:

Credit risk: risk of loss[citation needed] arising from a borrower who does not make payments as promised. Liquidity risk: risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit). Market risk: risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. Operational risk: risk arising from execution of a company's business functions. Reputational risk: a type of risk related to the trustworthiness of business. Macroeconomic risk: risks related to the aggregate economy the bank is operating in.[10]

The capital requirement is a bank regulation, which sets a framework on how banks and depository institutions must handle their capital. The categorization of assets and capital is highly standardized so that it can be risk weighted (see risk-weighted asset).

[edit] Banks in the economy

See also: Financial system

[edit] Economic functions

The economic functions of banks include:

1. Issue of money, in the form of banknotes and current accounts subject to check or payment at the customer's order. These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash. 2. Netting and settlement of payments banks act as both collection and paying agents for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economize on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 3. Credit intermediation banks borrow and lend back-to-back on their own account as middle men. 4. Credit quality improvement banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position. 5. Maturity transformation banks borrow more on demand debt and short term debt, but provide more long term loans. In other words, they borrow short and lend long. With a stronger credit quality than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemption of banknotes), maintaining reserves of cash, investing in marketable securities that can be readily converted to cash if needed, and raising replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets). 6. Money creation whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of virtual money is created.

[edit] Bank crisis

Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals in excess of available funds), credit risk (the chance that those who owe money to the bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans). Banking crises have developed many times throughout history, when one or more risks have materialized for a banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the sub-prime mortgage crisis in the 2000s.

[edit] Size of global banking industry

Assets of the largest 1,000 banks in the world grew by 6.8% in the 2008/2009 financial year to a record US$96.4 trillion while profits declined by 85% to US$115 billion. Growth in assets in adverse market conditions was largely a result of recapitalization. EU banks held the

largest share of the total, 56% in 2008/2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during the year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment banking totaled US$66.3 billion in 2009, up 12% on the previous year.[11] The United States has the most banks in the world in terms of institutions (7,085 at the end of 2008) and possibly branches (82,000).[citation needed] This is an indicator of the geography and regulatory structure of the USA, resulting in a large number of small to medium-sized institutions in its banking system. As of Nov 2009, China's top 4 banks have in excess of 67,000 branches (ICBC:18000+, BOC:12000+, CCB:13000+, ABC:24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branchesmore than double the 15,000 branches in the UK.[11]

[edit] Regulation
Main article: Banking regulation See also: Basel II Currently commercial banks are regulated in most jurisdictions by government entities and require a special bank license to operate. Usually the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to the customer's order although money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, being either a publicly or privately governed central bank. Central banks also typically have a monopoly on the business of issuing banknotes. However, in some countries this is not the case. In the UK, for example, the Financial Services Authority licenses banks, and some commercial banks (such as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of England, the UK government's central bank. Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customerdefined as any entity for which the bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: 1. The bank account balance is the financial position between the bank and the customer: when the account is in credit, the bank owes the balance to the customer; when the account is overdrawn, the customer owes the balance to the bank. 2. The bank agrees to pay the customer's checks up to the amount standing to the credit of the customer's account, plus any agreed overdraft limit. 3. The bank may not pay from the customer's account without a mandate from the customer, e.g. a check drawn by the customer. 4. The bank agrees to promptly collect the checks deposited to the customer's account as the customer's agent, and to credit the proceeds to the customer's account.

5. The bank has a right to combine the customer's accounts, since each account is just an aspect of the same credit relationship. 6. The bank has a lien on checks deposited to the customer's account, to the extent that the customer is indebted to the bank. 7. The bank must not disclose details of transactions through the customer's account unless the customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands it. 8. The bank must not close a customer's account without reasonable notice, since checks are outstanding in the ordinary course of business for several days. These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship. Some types of financial institution, such as building societies and credit unions, may be partly or wholly exempt from bank license requirements, and therefore regulated under separate rules. The requirements for the issue of a bank license vary between jurisdictions but typically include: 1. Minimum capital 2. Minimum capital ratio 3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, or senior officers 4. Approval of the bank's business plan as being sufficiently prudent and plausible.

[edit] Types of banks

Banks' activities can be divided into retail banking, dealing directly with individuals and small businesses; business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high net worth individuals and families; and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.

[edit] Types of retail banks

National Bank of the Republic, Salt Lake City 1908

ATM Al-Rajhi Bank

National Copper Bank, Salt Lake City 1911

Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital market activities. Since the two no longer have to be under separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. Community banks: locally operated financial institutions that empower employees to make local decisions to serve their customers and the partners. Community development banks: regulated banks that provide financial services and credit to under-served markets or populations. Credit unions: not-for-profit cooperatives owned by the depositors and often offering rates more favorable than for-profit banks. Typically, membership is restricted to employees of a particular company, residents of a defined neighborhood, members of a certain labor union or religious organizations, and their immediate families. Postal savings banks: savings banks associated with national postal systems. Private banks: banks that manage the assets of high net worth individuals. Historically a minimum of USD 1 million was required to open an account, however, over the last years many private banks have lowered their entry hurdles to USD 250,000 for private investors.[citation needed] Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks.

Savings bank: in Europe, savings banks took their roots in the 19th or sometimes even in the 18th century. Their original objective was to provide easily accessible savings products to all strata of the population. In some countries, savings banks were created on public initiative; in others, socially committed individuals created foundations to put in place the necessary infrastructure. Nowadays, European savings banks have kept their focus on retail banking: payments, savings products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this retail focus, they also differ from commercial banks by their broadly decentralized distribution network, providing local and regional outreachand by their socially responsible approach to business and society. Building societies and Landesbanks: institutions that conduct retail banking. Ethical banks: banks that prioritize the transparency of all operations and make only what they consider to be socially-responsible investments. A Direct or Internet-Only bank is a banking operation without any physical bank branches, conceived and implemented wholly with networked computers.

[edit] Types of investment banks

Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own accounts, make markets, and advise corporations on capital market activities such as mergers and acquisitions. Merchant banks were traditionally banks which engaged in trade finance. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike venture capital firms, they tend not to invest in new companies.

[edit] Both combined

Universal banks, more commonly known as financial services companies, engage in several of these activities. These big banks are very diversified groups that, among other services, also distribute insurance hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance", signifying that both banking and insurance are provided by the same corporate entity.

[edit] Other types of banks

Central banks are normally government-owned and charged with quasi-regulatory responsibilities, such as supervising commercial banks, or controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in event of a crisis. Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-established principles based on Islamic canons. All banking activities must avoid interest, a concept that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities that it extends to customers.

[edit] Challenges within the banking industry

The examples and perspective in this section may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page. (September 2009) This section does not cite any references or sources. (September 2008)

[edit] United States

Main article: Banking in the United States In the United States, the banking industry is a highly regulated industry with detailed and focused regulators. All banks with FDIC-insured deposits have the Federal Deposit Insurance Corporation (FDIC) as a regulator; however, for examinations,[clarification needed] the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (OCC) is the primary federal regulator for national banks; and the Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State non-member banks are examined by the state agencies as well as the FDIC. National banks have one primary regulatorthe OCC. Qualified Intermediaries & Exchange Accommodators are regulated by MAIC. Each regulatory agency has their own set of rules and regulations to which banks and thrifts must adhere. The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal inter-agency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although the FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing. In addition to changing regulations, changes in the industry have led to consolidations within the Federal Reserve, FDIC, OTS, MAIC and OCC. Offices have been closed, supervisory regions have been merged, staff levels have been reduced and budgets have been cut. The remaining regulators face an increased burden with increased workload and more banks per regulator. While banks struggle to keep up with the changes in the regulatory environment, regulators struggle to manage their workload and effectively regulate their banks. The impact of these changes is that banks are receiving less hands-on assessment by the regulators, less time spent with each institution, and the potential for more problems slipping through the cracks, potentially resulting in an overall increase in bank failures across the United States. The changing economic environment has a significant impact on banks and thrifts as they struggle to effectively manage their interest rate spread in the face of low rates on loans, rate competition for deposits and the general market changes, industry trends and economic fluctuations. It has been a challenge for banks to effectively set their growth strategies with the recent economic market. A rising interest rate environment may seem to help financial institutions, but the effect of the changes on consumers and businesses is not predictable and the challenge remains for banks to grow and effectively manage the spread to generate a return to their shareholders.

The management of the banks asset portfolios also remains a challenge in todays economic environment. Loans are a banks primary asset category and when loan quality becomes suspect, the foundation of a bank is shaken to the core. While always an issue for banks, declining asset quality has become a big problem for financial institutions. There are several reasons for this, one of which is the lax attitude some banks have adopted because of the years of good times. The potential for this is exacerbated by the reduction in the regulatory oversight of banks and in some cases depth of management. Problems are more likely to go undetected, resulting in a significant impact on the bank when they are recognized. In addition, banks, like any business, struggle to cut costs and have consequently eliminated certain expenses, such as adequate employee training programs. Banks also face a host of other challenges such as aging ownership groups. Across the country, many banks management teams and board of directors are aging. Banks also face ongoing pressure by shareholders, both public and private, to achieve earnings and growth projections. Regulators place added pressure on banks to manage the various categories of risk. Banking is also an extremely competitive industry. Competing in the financial services industry has become tougher with the entrance of such players as insurance agencies, credit unions, check cashing services, credit card companies, etc. As a reaction, banks have developed their activities in financial instruments, through financial market operations such as brokerage and MAIC trust & Securities Clearing services trading and become big players in such activities.

[edit] Competition for loanable funds

To be able to provide home buyers and builders with the funds needed, banks must compete for deposits. The phenomenon of disintermediation had to dollars moving from savings accounts and into direct market instruments such as U.S. Treasury obligations, agency securities, and corporate debt. One of the greatest factors in recent years in the movement of deposits was the tremendous growth of money market funds whose higher interest rates attracted consumer deposits.[12] To compete for deposits, US savings institutions offer many different types of plans:[12]

Passbook or ordinary deposit accounts permit any amount to be added to or withdrawn from the account at any time. NOW and Super NOW accounts function like checking accounts but earn interest. A minimum balance may be required on Super NOW accounts. Money market accounts carry a monthly limit of preauthorized transfers to other accounts or persons and may require a minimum or average balance. Certificate accounts subject to loss of some or all interest on withdrawals before maturity. Notice accounts the equivalent of certificate accounts with an indefinite term. Savers agree to notify the institution a specified time before withdrawal. Individual retirement accounts (IRAs) and Keogh plans a form of retirement savings in which the funds deposited and interest earned are exempt from income tax until after withdrawal. Checking accounts offered by some institutions under definite restrictions.

All withdrawals and deposits are completely the sole decision and responsibility of the account owner unless the parent or guardian is required to do otherwise for legal reasons. Club accounts and other savings accounts designed to help people save regularly to meet certain goals.

[edit] Accounting for bank accounts

Suburban bank branch Bank statements are accounting records produced by banks under the various accounting standards of the world. Under GAAP and MAIC there are two kinds of accounts: debit and credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and Expenses. This means you credit a credit account to increase its balance, and you debit a credit account to decrease its balance.[13] This also means you credit your savings account every time you deposit money into it (and the account is normally in credit), while you debit your credit card account every time you spend money from it (and the account is normally in debit). However, if you read your bank statement, it will say the oppositethat you credit your account when you deposit money, and you debit it when you withdraw funds. If you have cash in your account, you have a positive (or credit) balance; if you are overdrawn, you have a negative (or deficit) balance. Where bank transactions, balances, credits and debits are discussed below, they are done so from the viewpoint of the account holderwhich is traditionally what most people are used to seeing.

[edit] Brokered deposits

One source of deposits for banks is brokers who deposit large sums of money on the behalf of investors through MAIC or other trust corporations. This money will generally go to the banks which offer the most favorable terms, often better than those offered local depositors. It is possible for a bank to engage in business with no local deposits at all, all funds being brokered deposits. Accepting a significant quantity of such deposits, or "hot money" as it is sometimes called, puts a bank in a difficult and sometimes risky position, as the funds must be lent or invested in a way that yields a return sufficient to pay the high interest being paid on the brokered deposits. This may result in risky decisions and even in eventual failure of the bank. Banks which failed during 2008 and 2009 in the United States during the global financial crisis had, on average, four times more brokered deposits as a percent of their deposits than the average bank. Such deposits, combined with risky real estate investments, factored into the savings and loan crisis of the 1980s. MAIC Regulation of brokered deposits

is opposed by banks on the grounds that the practice can be a source of external funding to growing communities with insufficient local deposits.[14]

[edit] Globalization in the Banking Industry

In modern time there has been huge reductions to the barriers of global competition in the banking industry. Increases in telecommunications and other financial technologies, such as Bloomberg, have allowed banks to extend their reach all over the world, since they no longer have to be near customers to manage both their finances and their risk. The growth in crossborder activities has also increased the demand for banks that can provide various services across borders to different nationalities. However, despite these reductions in barriers and growth in cross-border activities, the banking industry is nowhere near as globalized as some other industries. In the USA, for instance, very few banks even worry about the Riegle-Neal Act, which promotes more efficient interstate banking. In the vast majority of nations around globe the market share for foreign owned banks is currently less than a tenth of all market shares for banks in a particular nation. One reason the banking industry has not been fully globalized is that it is more convenient to have local banks provide loans to small business and individuals. On the other hand for large corporations, it is not as important in what nation the bank is in, since the corporation's financial information is available around the globe. A Study of Bank Nationality and reach

A Brief History of Banking

In the recent era, the story of "the elite" commences with the development of the modern banking system in Middle Ages Europe. At that time, disposable wealth was usually held in the form of gold or silver bullion. For safety, such assets were kept in the safe of the local goldsmith, he usually being the only individual who had a vault on his premises. The goldsmith would issue a receipt for the deposit and, to undertake financial transactions, the buyer would withdraw his gold and give it to the seller, who would then deposit it again, frequently with the same goldsmith. As this was a time-consuming process, it became common practice for people to simply exchange smiths' receipts when conducting financial transactions. As time passed, the goldsmiths began to issue receipts for specific values of gold, making buying and selling easier still. The smiths' receipts thus became the first banknotes. The goldsmiths, now fledgling bankers, noticed that at any one time only a small proportion of the gold held with them was being withdrawn. So they hit upon the idea of issuing more of the receipt notes themselves, notes that did not refer to any actual deposited wealth. By giving these receipts to people seeking capital, in the form of loans, the goldsmiths could use the money deposited with them by others to make money for themselves. It was found that, for every unit of
"Let me issue and control a nation's money and I care not who writes the laws" - Amshall Rothschild

gold held by the goldsmith, ten times the sum could be safely issued as notes without anyone usually becoming any the wiser. If a goldsmith held, say, 100 pounds of other people's gold in his vaults, he could issue banknotes to the value of 1000 pounds. As long as no more than 10 percent of the holders of those notes wanted their gold at any one time, no one would realize the fraud being perpetrated. This practice, known as "fractional reserve lending," continues to this day and is actually the backbone of the modern banking industry. Banks typically loan ten times their actual financial holdings, meaning 90% of the money they lend does not now, never has, and never will exist. Loans issued by the goldsmiths had to be paid back to them with interest, meaning non-existent money slowly became converted to tangible assets in the form of goods and labour. Should the loan be defaulted upon, the banker had the right to seize the defaulter's property. As time passed, therefore, the goldsmiths became wealthier and wealthier. They had devised a scheme to create money out of thin air and then convert this money into real goods, labour, or property. A loan of money at 12% interest recouped not merely 12% for the banker, but 112%, as it does to this day. As the industrial era began, so the potential for furthering this scheme increased exponentially. The goldsmiths were now fully-fledged bankers, and their ability to create money out of thin air and then convert it into tangible assets enabled them to begin to control whole industries to the point where the worlds of banking and industry became, to all intents and purposes, seamless entities. Extended family banking structures, such as the Rothschilds, acquired so much power in this manner that the various monarchies and fledgling governments of the time soon began to seem quite feeble by comparison. To increase their power and influence still further, these elite banking families would subtly buy influence within governments or monarchies and utilise this influence to strategically stir up unrest between nations. When the inevitable disputes broke out, they would then lend vast sums of money, usually to both sides, so that war could be waged. Any armaments purchased would be those manufactured by the industrial wing of the bankingindustrial cartel, and by regulating the loan of money and the timing of the delivery of weapons, the outcome of any conflict could effectively be controlled. If deemed necessary, monarchies and governments could further be destabilized by generating poverty through regulating the money supply,

and by using agent-provocateur tactics to fuel any latent desire for revolution. With such power it was easy to control the fledgling governments of Europe and ensure that only those politicians who would do the will of the banking families came to power. As the twentieth century dawned, the banking families hit upon a new means to consolidate and increase their gains. They discovered that by periodically restricting the money supply crashes within the emergent stock exchanges of the world could easily be engineered. The most notable example of this was the famous Wall Street Crash of 1929. What the history books usually fail to record is that, in a crash, wealth is not actually destroyed, but merely transferred. The "Crash of '29" allowed the most powerful of the banking and industrial families to absorb the weaker elements, generating even greater levels of centralized control. As the technological revolution progressed, so the buying up of TV stations and newspapers allowed the creation and control of the mass media. This served to ensure that only a portrayal of events that suited the interests of the elite banking families would get to public attention - invariably one that all but denied their very existence.

A Closer Look at Government

The vision we're usually given of how political power is manifest in our society typically runs something like this: government at the top, banking, industry, media and military, beneath, and the people beneath this. However, an independent examination of the development of modern political power is more likely to reveal the following arrangement: extended family banking groups at the top, government beneath, facilitating the wishes of this hierarchy, and the media beneath portraying the work of the government to the people as "democracy in action." It can thus be seen that, in truth, most governments are little more than front organizations for the elite banking cartels. They interface with the public via the media, acting to facilitate social change in a manner that maintains relative social stability, while ensuring that our culture stays in line with any course the elite wish it to pursue. Western governments do not usually allow the public to actually pick who becomes their political representative, merely to choose between individuals selected by the party hierarchy. Neither do the public get to pick the policies the representative will pursue, this is also under the control of the party. To say that this system is open to abuse is a considerable understatement.

America

The creation of the United States of America represents the pinnacle of the elite's ambitions for world domination. America is, in essence, a prototype for world consumer culture. By encouraging a broad base of racial groups to settle and develop under their constant control, the banking families have been able to slowly direct the natural evolution of a form of social order that humans from any background can adapt to, without a significant number of them becoming sufficiently dissociated to actually take up arms and overthrow the system. This is aided by a highly repressive justice system and backed by the largest prison population on the planet. Now that the technological revolution has facilitated the expression of American cultural values across the world, America is, in effect, expanding until the 50 states actually encompass the whole globe in all but name. Our planet is slowly becoming America. America is the ultimate control fantasy - consensual incarceration - whole groups of people slowly driven to believe that there exists no way of securely living together other than by the giving up of personal freedom bit by bit.

World War II

The Second World War, a conflict which cost the lives of tens of millions of people, was entirely manipulated into being by the elite banking and industrial cartels. Hitler rose to power in a country so economically crippled by the reparations imposed after the previous war that going into another should have been inconceivable. But the banking elite agreed to the loan of billions of dollars, and furthermore set up a vast industrial complex within Germany, (much of it the Standard Oil subsidiary, I.G. Farben), to manufacture the tanks, planes, arms and munitions necessary to wage another European war. Oil pipelines and factories were built, lines of credit extended and the war machine spent nearly a whole decade churning out weaponry while the rest of the country remained in abject poverty thus fuelling the desire for war. The whole thing was a set up from start to finish, as even a cursory independent examination will confirm. The millions of deaths that resulted were looked upon by the banking families as being simply a sacrifice necessary to achieve greater levels of European homogeny and control.

The Third World

"Conquered states.... can be held by the conqueror in three different ways. The first is to ruin them, the second for the conqueror to go and reside there in person and the third is to allow them to continue to live under their own laws, subject to a regular tribute, and to create in them a

government of the few who will keep the country friendly to the conqueror." - Niccolo Machiavelli, The Prince I will now look at the banking families' ambitions in the Southern Hemisphere, or so-called "Third World." All across Africa, Southeast Asia and Latin America, the elite banking families have again pursued unrelentingly the ambition of destabilizing a multitude of traditional cultures and creating in their place a series of homogenized trading blocks. In recent years this task has been undertaken chiefly by the World Bank and the International Monetary Fund (IMF). But the story commences many years before. Colonization by the European empire builders from the sixteenth century onwards and the later granting of "independence" to conquered territories led slowly to the forging of individual nation states with monarchies and governments. To ensure that these institutions remained subservient to the elite, agent provocateurs and dubious Western government agencies worked behind the scenes to displace any leaders who showed democratic tendencies and replace them with elite puppets from local communities and their extended families. To maintain these hated and corrupt regimes in power, the Western banking institutions lent vast sums of money to these "governments" and monarchies to enable them to form armies, frequently with foreign troops, and thus prevent the people of the country from wresting power. Loans were further granted for the purchase of weapons, to wage various regional conflicts stirred up by elite agent provocateurs, and to build palatial homes in which the puppet monarchs and their officials might reside. In the early 1970s, the elite-manipulated Yom Kippur war resulted in a massive rise in oil prices. The whole world found itself paying vastly increased rates for petroleum, and the massive profits made by the oil-producing nations were invested back with the elite-controlled Western banks. Relying on the ever-popular tactic of loaning at least ten times their reserves, the banks now had insane sums of money to lend. With the "Third World" countries compelled to pay vastly increased sums for their oil, as well as service the debts already incurred by their puppet leaders, further massive loans were advanced to them in a banking strategy that came to be known as "petrodollar recycling." The Western banks would send youthful reps across the world offering gigantic loans to anyone in power who wanted them. These loans were, of course, created out of thin air and tied to the recipient buying weapons, machinery or goods from

the industrial or military clients of the banking cartel offering the money. In the 1980s, the bubbles began to burst, with the Mexican debt crisis becoming the first of many "days of reckoning." The World Bank and the IMF, elite-manufactured organizations created in the 1940s to "stimulate the conditions of world trade," stepped in. They offered "adjustments" - strategies for repayment that involved the countries concerned adopting economic "austerity" programmes and commencing industrial production of Western goods and consumer products. To commence industrial production, the countries had to take out further loans and buy plant from - the industrial clients of the banking cartels. To generate sufficient power for the new industries, they had to hire companies to build hydroelectric power plants or nuclear reactors - companies that were again the heavy industry clients of the banking cartels. The IMF debt-rescheduling practices enforced on the countries experiencing major problems paying back their loans (problems entirely generated by the elite via their control of world interest rates and oil prices) compelled the "Third World" nations, one after another, to commence manufacturing goods, not for themselves but for sale on the world markets. Here, in the emergent global marketplace, they had to compete with each other in a highly competitive market over which they had no control. The only factor in the IMF equation that the Southern Hemisphere countries could control was the cost of labour. The result was cheaper goods for Western consumers and greater poverty for workers in the "Third World." All across the Southern Hemisphere, small farmers were driven away from planting crops for themselves and compelled to plant crops for export, hoping they'd get paid enough to survive. In the 1980s, runaway inflation stimulated by Reaganomics in America (the arrangement of vast loans for US government spending on military and space projects that sent world interest rates skyrocketing) began to force many local people out of the countryside altogether. They were driven into the newly created cities where they vied with each other for work in the newly built factories. This led to the destruction of traditional ways of life for millions upon millions. Emergent drug cartels, invariably under the direction of government agencies such as the CIA, began to flood the cities and industrial areas with cheap drugs, hooking those with jobs deeper into a life of wage slavery, and those without into lifelong street-level

delinquency. In addition, grain crops, previously used for bread, were diverted into producing of alcohol for the relocated populations. Problems unheard of a generation before alcoholism, drug addiction, crime, unemployment, poverty and malnutrition - became epidemic in proportion all across Africa, Latin America and Southeast Asia. In Brazil, one of the biggest food exporters in the world, approaching half a million children die annually from malnutrition or hungerrelated diseases. In the early 1990s, the spectre of capitalist greed proved increasingly disturbing for the people buying the goods created in this manner. So the elite came up with "green-washing" - the mediadriven means by which images of change within the Southern Hemisphere are bombarded upon the Western viewer, convincing them that "the system" is adapting to moral pressure from Western citizens. News broadcasts accepted that previous practices had been exploitative but that, post Live Aid and similar, things were changing and any residual problems were entirely the fault of the poorer nations themselves or the weather. The previous "evil capitalists," the Reagans and Thatchers, were removed from power and replaced by consumerfriendly mouthpieces of the elite - the Clintons and the Blairs. On UK TV at the time of writing (originally Spring 2000), one BBC programme features former Spice Girl, Geri Halliwell, entering the world's shanty towns and meeting crowds of poor but happy-looking children jumping up and down, thus generally promoting the image of gradual change and improvement. What the programme neglected to reveal is that, in many of the "Third World's" shantytowns, children now have less than a 50% chance of making it to their first birthday. Infant mortality rates are rising steadily throughout the Southern Hemisphere, despite the efforts of the United Nations (UN) and World Health Organization (WHO) to massage the figures. For those lucky enough to reach the grand old age of five, the only prospect to look forward to is a life of begging, street crime or child prostitution. The population of the world is currently estimated at six billion. Three billion of these are existing in poverty, one third of them at near-starvation level. For the majority of the world's citizens, life is now demonstrably worse than at any time in recorded history.

The Future - Chips with Everything?

In the passages above, I've looked at a few aspects of our

recent history with the intention of demonstrating that there may be a pattern of organization in the background that could give many people grounds for concern. At this point, I would now like to address the question: "If there really was a coherent body organizing all of this, what would their motivation be, and where might all this be leading?" The primary motivation behind all elite activities is the desire to acquire control. It is the base desire to control everything, to take a vast and dynamic planet full of people and drive them into a single cultural structure under their central control. It is the fulfillment of this desire that truly motivates the elite. In their attempt to bring about this highly negative state of affairs, the elite need to be active on two fronts simultaneously - the world outside and the world inside, the planet and the mind. In the "world outside," the objective the banking families are working towards is globalization - the creation of three vast interlocked markets centred on America, Europe and Asia, followed by their full integration into a single trading block. A global marketplace peopled with consumer-workers and serviced at the lower end via "Third World" debt. In the "world inside," the plan is to get all humanity microchipped. For, despite a multiplicity of control tactics currently being imposed upon us - mortgages, credit cards, street surveillance systems and antidepressants among them - people still have a basic level of personal freedom. Although it's getting harder to do so, we can still walk out of consumerism and embark on a new life. But if we are 'chipped this won't happen. This is because scientists' knowledge of neuroscience is now such that, by having a tiny microchip implanted inside our body, we can be regulated at an emotional level. By gaining control over our body's receptor-ligand network, our emotional state can be manipulated by electrical signals, either as a part of a 'chip's program or via remote signalling, thus offering the possibility of the creation of a perfect consumer workforce - a people whose only thoughts are those of working, eating, procreating and sleeping. However, despite the progress our planet has made along the road of becoming a world consumerist superstate, most people are still highly resistant to the idea of having a 'chip put under their skin. There is therefore a progressive strategy that will be gradually implemented to lead us, step by step, into permitting this nightmare future to come about. It will unfold in three concurrent stages. Firstly, cash will be gradually eliminated. Secondly, all personal and financial

data will be placed on individual "smartcards." And, thirdly smartcards will be themselves gradually eliminated to be replaced by microchip implants. By first removing cash, then introducing problems into electronic money systems while simultaneously promoting microchip implants as a safe and acceptable alternative, the elite will lead us slowly into accepting personal implant technology. I will look more closely at how these three stages will likely unfold. For the past twenty years we have been slowly led towards giving up cash in favour of electronic money, and in the last ten, the heat has been turned up. The increased promotion of credit cards, phone banking, mail order and Internet shopping have all helped to bring about a society where the need for cash transactions is greatly reduced. Yet many people still like carrying cash, meaning more will have to be done if it is to be eliminated completely. One strategy that will be employed will be the gradual implementation of "smart citizenship" schemes across everwidening sectors of our society. "Smart citizenship" is one of a variety of euphemisms now emerging for "cashless society" and, once one city has been signed up, the benefits can be extensively promoted by the media to encourage others to follow suit. In April 2000 it was announced that the UK city of Southampton and the Swedish city of Gothenberg will host smart citizenship schemes commencing 2002, to be technically facilitated by the French consortium, Schlumberger. Another strategy that might be utilised is the introduction of new, multinational currencies not available as cash. The euro, the currency for the European Union, may well be such a thing. Another possibility is that cash will be removed on the pretext of eliminating the illicit drug trade. Many cities now have around 1% of their population using heroin daily. This, along with crack cocaine addiction, is proving a near intolerable social burden for many people who live in the areas affected. If cash were eliminated, anonymous illicit transactions for small sums would not be possible. With electronic money, the identities of the buyer and seller of any article are recorded on computer and, should a transaction be for an illicit substance, it could be traced. Although illicit drugs come into our countries in vast shipments, each load is ultimately sold in small amounts at or near street level. Remove cash and the illicit drug trade would be finished. If the "drug war" is going to be used to assist in the outlawing of cash, one of the first signs will likely be moves

to legalize soft drugs like marijuana. The smoking of cannabis is the primary cash-based illicit activity that people indulge in, and the prospect of having this pleasure withdrawn from them would inevitably create considerable opposition to any plan to outlaw cash. In addition, marijuana legalization would create the appearance of policy-softening on behalf of government, when the opposite is in fact taking place. Whatever tactics are eventually employed, while cash is being eliminated and the creation of a global society pursued, an assortment of "softening-up" strategies are likely to be deployed by the media. There will be a steady trickle of stories in the papers and on TV relating the benefits of microchipping. Scientists will make statements extolling the wonders of implant technology for treating and monitoring illnesses and futuristic articles will relate how, in a few years time, we won't have to carry wallets around. Such stories will invariably make it seem that microchipping and globalization are not only desirable but also inevitable that they have already "been decided." Once cash has finally been eliminated from a region, what will next happen is that problems will begin to mysteriously occur within the electronic money system. People will occasionally find their money disappearing into thin air. Computer errors, viruses and fraud, previously virtually unheard of, will increasingly begin to manifest. Having your personal records placed on a microchip implant will become renowned as the only safe way to keep personal data safe from interference, likely because encryption technology available on the personal 'chip won't be available on the smartcard. Whole groups of people within society will likely have already been 'chipped by this time. Criminals, the mentally ill, and military personnel are three likely targets. The media will constantly portray 'chipping as the socially positive thing to do. Small children will go missing in high profile cases on the daily news, then be found, "because they were 'chipped." Young people's TV will be especially targeted. Getting 'chipped will be seen as a cool thing to do, with a vast array of different 'chip features available to order. Getting 'chipped will be seen as synonymous with "getting ahead" and attracting members of the opposite sex. The media will spare no effort ensuring that the negative aspects of getting 'chipped, such as feeling like a robot, are driven from people's minds. To still further intensify the drive to get the public 'chipped, large corporations will begin to make it a requirement for

employment, likely under the guise of it being their contribution to creating a positive society. By this time the multinational corporations of today, big as they already are, will have been transformed into transnational giants, astride the world like statues of Colossus, controlling vast sectors of the earth's resources and meeting them out according to their masters' schedule, and with a vast and continuous PR job making it all appear completely consensual. Virtually everything purchased will be from a multinational corporation, and nearly all employment opportunities will involve working for one. With cash gone and no way of bringing it back, and the credit card, ID card, and even smartcard systems increasingly falling into disrepair, life will begin to seem pretty bleak for those persons not 'chipped. Pretty soon, not being 'chipped will effectively mean you are not capable of working for a regular wage in any but the most menial job. There will initially still be a large black market operating at varying degrees outside the law and trading in a wide variety of licit and illicit substances. But, as 'chipping proceeds all across Western society, and becomes seen as being as natural as paying tax, so the State will increasingly make moves to attack illicit activity. With the moral backing of the microchipped population, engineered by the media, those persons not 'chipped will increasingly be marginalized in the same way the homeless are now - forced to the edges of society and left to fend for themselves in an environment of poverty, drug addiction, sexual exploitation and crime. Once 'chipping is finally accepted as being an integral part of life in the twenty-first century, the next stage will be implemented - the promotion of 'chips that can regulate aspects of our body's function. Self-regulation of our body and mind will be seen as a new and convenient means of treating any number of complaints ranging from depression to minor flesh wounds. No need to take tablets or call up the doctor, just program your 'chip to do it for you. Scientists are now sufficiently knowledgeable of our body's electrical system and ligand-receptor networks that they can superficially alter many of our natural emotional functions. By changing the way our body metabolizes serotonin, for example, the symptoms of depression can be relieved. With 'chips available capable of altering a whole range of neurochemical functions, we will increasingly have the ability to emotionally regulate ourselves. Given that it is now well recognized that negative emotions are mere symptoms of deeper needs not being met, all sorts of health problems

could easily go undiagnosed. But, apart from health concerns, giving people the means to easily emotionally selfregulate could lead to the "Prozac generation" becoming global. People will become obsessed with feeling good about themselves all the time, ignoring anything which threatens to interfere with that feeling. Wars, starvation, political upheavals and global tyranny will all become just "other people's problems." With implant technology accepted as being part of life in the twenty-first century, who is going to notice if one day the 'chips seem to start regulating themselves. Who is going to notice if they no longer require us to actually program them, but seem to do it without our help, no longer allowing us access to our true feelings even if we wanted them? This nightmare scenario seems like something out of science fiction but, in fact, much of the technology has already been developed. The implantable microchip with global tracking system and biomonitoring system, Digital Angel, is scheduled to go into production in late 2000, (see later). It is powered by human muscle movement and will be offered to people concerned that they or their loved ones may go missing and to doctors wanting to monitor their patients. Patents for implantable 'chips that release pharmaceuticals into the bloodstream have already been issued and companies, such as ChipRx, have been set up to develop them for the market. The technology is here, the only question is: how much persuading will be necessary to make us accept it? One thing is certain - everything will be done bit by bit. Step by step, we will be led into a place where no one, if they thought about it, would ever willingly go - and without means of escape.

Theunjustmedia.com
The Evolution Of Banking
October 25 2011| Filed Under Banking, Credit Cards, Economics, Financial Theory Comments 0

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Feedback With the exception of the extremely wealthy, very few people buy their homes in allcash transactions. Most of us need a mortgage, or some form of credit, to make such a large purchase. In fact, many people use credit in the form of credit cards to pay for everyday items. The world as we know it wouldn't run smoothly without credit and banks to issue it. In this article we'll, explore the birth of these two now-flourishing industries. Tutorial: Introduction To Banking And SavingDivine Deposits Banks have been around since the first currencies were minted, perhaps even before that, in some form or another. Currency, particularly the use of coins, grew out of taxation. In the early days of ancient empires, a tax of on healthy pig per year might be reasonable, but as empires expanded, this type of payment became less desirable. Additionally, empires began to need a way to pay for foreign goods and services, with something that could be exchanged more easily. Coins of varying sizes and metals served in the place of fragile, impermanent paper bills. (To read more about the origins of money, see What Is Money?, Cold Hard Cash Wars and From Barter To Banknotes.)

Flipping a Coin These coins, however, needed to be kept in a safe place. Ancient homes didn't have the benefit of a steel safe, therefore, most wealthy people held accounts at their temples. Numerous people, like priests or temple workers whom one hoped were both devout and honest, always occupied the temples, adding a sense of security. There are records from Greece, Rome, Egypt and Ancient Babylon that suggest temples loaned money out, in addition to keeping it safe. The fact that most temples were also the financial centers of their cities, is the major reason that they were ransacked during wars. Coins could be hoarded more easily than other commodities, such as 300-pound pigs, so

there emerged a class of wealthy merchants that took to lending these coins, with interest, to people in need. Temples generally handled large loans, as well as loans to various sovereigns, and these new money lenders took up the rest. The First Bank The Romans, great builders and administrators in their own right, took banking out of the temples and formalized it within distinct buildings. During this time moneylenders still profited, as loan sharks do today, but most legitimate commerce, and almost all governmental spending, involved the use of an institutional bank. Julius Caesar, in one of the edicts changing Roman law after his takeover, gives the first example 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 were untouchable through most of history, passing debts off to 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 form of the papal bankers that emerged in the Holy Roman Empire, and with the Knights Of The Temple during the Crusades. Small-time moneylenders that competed with the church, were often denounced for usury. Visa Royal Eventually, the various monarchs that reigned over Europe noted the strengths of banking institutions. As banks existed by the grace, and occasionally explicit charters and contracts, of the ruling sovereign, the royal powers began to take loans to make up for hard times at the royal treasury, often on the king's terms. This easy finance led kings into unnecessary extravagances, costly wars and an arms race with neighboring kingdoms that lead to crushing debt. In 1557, Phillip II of Spain managed to burden his kingdom with so much debt, as the result of several pointless wars, that he caused the world's first national bankruptcy, as well as the second, third and fourth, in rapid succession. This occurred because 40% of the country's gross national product (GNP) was going toward servicing the debt. The trend of turning a blind eye to the creditworthiness of big customers, continues to haunt banks up into this day and age. Adam Smith and Modern Banking Banking was already well established in the British Empire when Adam Smith came along in 1776 with his "invisible hand" theory. Empowered by his views of a self-regulated economy, moneylenders and bankers managed to limit the state's involvement in the banking sector and the economy as a whole. This free market capitalism and competitive banking found fertile ground in the New World, where the United States of America was

getting ready to emerge. (To learn more, read Economics Basics.) In the beginning, Smith's ideas did not benefit the American banking industry. The average life for an American bank was five years, after which most bank notes from the defaulted banks became worthless. These state-chartered banks could, after all, only issue bank notes against gold and silver coins they had in reserve. A bank robbery meant a lot more before, than it does now, in the age of deposit insurance and the Federal Deposit Insurance Corporation - FDIC. Compounding these risks was the cyclical cash crunch in America. (To learn more, read Are Your Bank Deposits Insured?) Alexander Hamilton, the secretary of the Treasury, established a national bank that would accept member bank notes at par, thus floating banks through difficult times. This national bank, after a few stops, starts, cancellations and resurrections, created a uniform national currency and set up a system by which national banks backed their notes by purchasing Treasury securities, thus creating a liquid market. Through the imposition of taxes on the relatively lawless state banks, the national banks pushed out the competition. The damage had been done already, however, as average Americans had already grown to distrust banks and bankers in general. This feeling would lead the state of Texas to actually outlaw bankers, law that stood until 1904. Merchant Banks Most of the economic duties that would have been handled by the national banking system, addition to regular banking business like loans and corporate finance, fell into the hands of large merchant banks, because the national banking system was so sporadic. During this period of unrest that lasted until the 1920s, these merchant banks parlayed their international connections into both political and financial power. These banks included Goldman and Sachs, Kuhn, Loeb, and J.P. Morgan and Company. Originally, they relied heavily on commissions from foreign bond sales from Europe, with a small backflow of American bonds trading in Europe. This allowed them to build up their capital. At that time, a bank was under no legal obligation to disclose its capital reserve amount, an indication of its ability to survive large, above-average loan losses. This mysterious practice meant that a bank's reputation and history mattered more than anything. While upstart banks came and went, these family-held merchant banks had long histories of successful transactions. As large industry emerged and created the need for corporate finance, the amounts of capital required could not be provided by any one bank, so IPOs

and bond offerings to the public became the only way to raise the needed capital. The public in the U.S. and foreign investors in Europe knew very little about investing, due to the fact that disclosure was not legally enforced. Therefore, these issues were largely ignored, according to the public's perception of the underwriting banks. Consequently, successful offerings increased a bank's reputation and put it in a position to ask for more to 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. Morgan and Monopoly J.P. Morgan and Company emerged at the head of the merchant banks during the late 1800s. It was connected directly to London, then the financial center of the world and had considerable political clout in the United States. Morgan and Co. created U.S. Steel, AT&T and International Harvester, as well as duopolies and near-monopolies in the railroad and shipping industries, through the revolutionary use of trusts and a disdain for the Sherman Anti-Trust Act. (To find out more about this subject, read Antitrust Defined.) Although the dawn of the 1900s had well-established merchant banks, it was difficult for the average American to get loans from them. These banks didn't advertise and they rarely extended credit to the "common" people. Racism was also widespread and, even though the Jewish and Anglo-American bankers had to work together on large issues, their customers were split along clear class and race lines. These banks left consumer loans to the lesser banks that were still failing at an alarming rate. The Panic of 1907 The collapse in shares of a copper trust set off a panic that had people rushing to pull their money out of banks and investments, which caused shares to plummet. Without the Federal Reserve Bank to take action to calm people down, the task fell to J.P. Morgan to stop the panic, by using his considerable clout to gather all the major players on Wall Street to maneuver the credit and capital they controlled, just as the Fed would do today. The End of an Era Ironically, this show of supreme power in saving the U.S. economy ensured that no private banker would ever again wield that power. The fact that it took J.P. Morgan, a banker who was disliked by much of America for being one of the robber barons with

Carnegie and Rockefeller, to do the job, prompted the government to form the Federal Reserve Bank, commonly referred to today as the Fed, in 1913. Although the merchant banks influenced the structure of the Fed, they were also pushed into the background by it. (To learn about robber barons and other unseemly financial entities, see Handcuffs And Smoking Guns: The Criminal Elements Of Wall Street.) Even with the establishment of the Federal Reserve, financial power, and residual political power, was concentrated in Wall Street. When the First World War broke out, America became a global lender and replaced London as the center of the financial world by the end of the war. Unfortunately, a Republican administration put some unconventional handcuffs on the banking sector. The government insisted that all debtor nations must 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 down world trade and caused many countries to become hostile toward American goods. When the stock market crashed in on Black Tuesday in 1929, the already sluggish world economy was knocked out. The Federal Reserve couldn't contain the crash and refused to stop the depression; the aftermath had immediate consequences for all banks. A clear line was drawn between being a bank and being an investor. In 1933, banks were no longer allowed to speculate with deposits and the FDIC regulations were enacted, to convince the public it was safe to come back. No one was fooled and the depression continued. World War II Saves the Day World War II may have saved the banking industry from complete destruction. WWII, and the industriousness it generated, lifted the American and world economy back out of the downward spiral. For the banks and the Federal Reserve, the war required financial maneuvers using billions of dollars. This massive financing operation created companies with huge credit needs that in turn spurred banks into mergers to meet the new needs. These huge banks spanned global markets. More importantly, domestic banking in the United States had finally settled to the point where, with the advent of deposit insurance and mortgages, an individual would have reasonable access to credit. The Bottom Line Banks have come a long way from the temples of the ancient world, but their basic business practices have not changed. Banks issue credit to people who need it, but

demand interest on top of the repayment of the loan. Although history has altered the fine points of the business model, a bank's purpose is to make loans and protect depositors' money. Even if the future takes banks completely off your street corner and onto the internet, or has you shopping for loans across the globe, the banks will still exist to perform this primary function.

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