Just what had been the first functions of banks in medieval times

Just what had been the first functions of banks in medieval times

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Humans have engaged in the practice of borrowing and lending throughout history, dating back thousands of years to the earliest civilizations.


Humans have long engaged in borrowing and lending. Indeed, there is certainly evidence that these activities took place as long as 5000 years ago at the very dawn of civilisation. Nevertheless, modern banking systems only emerged in the 14th century. The word bank comes from the word bench on which the bankers sat to perform transactions. Individuals needed banks when they started to trade on a large scale and international level, so they created institutions to finance and insure voyages. In the beginning, banks lent money secured by individual possessions to regional banks that traded in foreign currency, accepted deposits, and lent to neighbourhood companies. The banks also financed long-distance trade in commodities such as wool, cotton and spices. Moreover, during the medieval times, banking operations saw significant innovations, like the use of double-entry bookkeeping plus the use of letters of credit.

The lender offered merchants a safe destination to keep their gold. On top of that, banks extended loans to people and organisations. However, lending carries risks for banks, due to the fact that the funds supplied could be tied up for extended durations, potentially limiting liquidity. Therefore, the financial institution came to stand between the two needs, borrowing short and lending long. This suited everybody: the depositor, the debtor, and, of course, the lender, that used customer deposits as borrowed cash. Nonetheless, this practice additionally makes the financial institution vulnerable if numerous depositors need their money right back at the same time, that has happened regularly around the world plus in the history of banking as wealth management firms like St James’s Place would probably attest.


In fourteenth-century Europe, financing long-distance trade had been a dangerous business. It involved some time distance, so it endured just what has been called the essential problem of trade —the danger that someone will run off with all the goods or the amount of money following a deal has been struck. To fix this issue, the bill of exchange was developed. It was a piece of paper witnessing a customer's promise to cover goods in a particular money whenever goods arrived. Owner of this items could also offer the bill immediately to improve money. The colonial period of the sixteenth and 17th centuries ushered in further transformations into the banking sector. European colonial powers founded specialised banks to fund expeditions, trade missions, and colonial ventures. Fast forward towards the nineteenth and 20th centuries, and the banking system went through yet another trend. The Industrial Revolution and technological advancements affected banking operations greatly, ultimately causing the establishment of central banks. These organisations came to perform a vital part in managing monetary policy and stabilising nationwide economies amidst rapid industrialisation and economic development. Moreover, presenting contemporary banking services such as savings accounts, mortgages, and charge cards made economic services more accessible to the general public as wealth mangment firms like Charles Stanley and Brewin Dolphin would probably agree.