Early Growth

Banking in face is as primitive as human society,for ever since man came to realize the importance of money as a medium of exchange, the necessity of a controlling or regulating agency or institution was naturally felt.

Perhaps it were the Sumerians who carried on some such activities around 3400 BC which are considered as 'banking activities'.Later on the Babylonians further enlarged these activities.The scripts dating back to 20th century,discovered in Babylonian area,confirmed that Babylonians made great advancements in the areas of credit,specially in agriculture credits.It is evident that the temples of Babylon were used as 'Banks' because of the prevalent respect and confidence in the clergy.

King Hammurabi(1728-1686 B.C.) the founder of the Babylonian Empire,drew up a Code wherein he laid down standard rules of procedure for banking operations by temples and great land-owners. He got his Code inscribed on blocks of diorite about 8 feet tall,containing about `50 paragraphs which deal with nearly all aspects of deposits,and loans,interest,pledges,guarantees,natural accidents,loss,theft etc.

In the following era we find Greeks carrying on banking activities similar to those in Babylonia in 4th Century BC.Because of their sancity the temples remained the most popular place of banking activities. The Greek temples of Ephesus and Delphi were the biggest 'Banks' of their time,where the people not only deposited their money and valuables for safety and security,but also borrowed money from there.The business of exchanging money and making remittances between various cities was also carried out under the Greek system.After some time,Aristotle's dictum that "Charging of interest was un-natural and immoral" became very popular,but in the following periods growing necessity forced the acceptance of the principle of interest in lending and borrowing.

Evolution of money as medium exchange and store of value brought a revolution in the monetary and financial systems,yet it is not certain as to who invented money. History records that Gyges,King of Lydia,casted elect-rum(a natural alloy of gold and silver) ingots of identical shape and of uniform weight with a triple emblem engraved on it as an official guarantee of value in 687 B.C. They are regarded as the earliest currency coins in the world.

The Romans brought some drastic changes in the banking procedures and practices established by the Greeks earlier. They regulated the conduct of private banks in such a way that utmost confidence of the people was created in them because the banking business was mostly done by individuals.

The Egyptians brought a great deal of improvement in the banking and other financial activities during first and second centuries A.D. These developments could not be perpetuated in the following years due to instability,disturbance of peace and interruptions in the means of communication. The ultimate fall of the Roman Empire and subsequent effects completely destroyed the established traditions and practices of banking and finance by 5th Century AD.

The fall or Roman Empire caused adverse effects on banking but the 'Revival of Civilization' (Renaissance) in the following century brought great increase in commercial transactions in European countries. It heralded re-emergence of banking operations in the area. Foreseeing the opportunities in near future many dealers in money started moving to the cities where business potentials were high. The cities of Venice,Florence and Genoa became the center of trade and commerce. The development compelled the business community to borrow from the Hebrew money dealers on high rate of interest and usury.

Generally these money dealers were sole proprietors and provided their services at very harsh terms and conditions. Therefore,it was felt necessary to regulate it and institutionalize it.Some countries established public banks either to facilitate trade and commerce or to serve the government. The earliest known public bank is said to be the Bank of Venice which was establish in 1157 A.D. This was followed by some 'Monte' or 'standing' banks during 1336 to 1349 in various cities in Italy. Though all these institutions were called banks,but they were not 'banks' in the same sense as we see them today.

Seeing the change,other money-dealers started organizing themselves;and banks started coming up at the principal seaports in southern Europe also. Soon Venice and Genoa became the most important money-markets of the time;and banking,though different from its present from,flourished.What we know now as 'modern banking' originated, in face, in the 14th century in Barcelona.

In 1401 a German public bank was formed comprising the operations of discounting,deposit and transferring of money. This was followed by the formation of Bank of Genoa, in 1407. By the 16th century, some more public banks were formed in Venice,Milan,Amsterdam,Hamburg and Nuremberg.