1. Origin, Types, and Functions of Banking
Posted by admin On December 10, 2009 6:16 AM
The origin of banking can be traced back to about 12,000 years ago to the Assyrian Empire, whose business
and investments were managed by the clan of Engadi, a family that was highly connected to the rulers of the
empire. During the Babylonian Empire from 1728 ? 1686 BC, the laws of financial transactions and
standardized procedures were carved on six feet high tablets of stone. These inscriptions set out the details
of the operations of loans, interest, and guarantees.
The ancient Greeks and the Romans also established their own banking systems, using credit notes and a universal currency. Very
soon, the need for cross-border banking was felt and a resolute the system was established to enable foreigners to trade with
Romans confidently. Even the Greeks had introduced a credit-based banking system for trading with the Egyptians, but the Roman
system was more organized having proper regulatory systems and practices. With the fall of the Roman Empire, these systems
collapsed, and it was not until the 16th century that the systems were revived with the opening of the London Royal Exchange in
1565. In the US, commercial banking was introduced in the late 1700s and early 1800s. The British system laid the foundation of
modern bank in most other countries of the world.
Basic Functions
Banks collect funds from the general public and keep them safely. The depositor can withdraw either a part or the whole
amount of money whenever he needs to do it, subject to certain rules and regulations of the bank. Moreover, the depositor
can also issue a check to another person, and the bank will transfer the amount of the check into the account of the
recipient. This can also be done through automatic transfer through the banking system and through online banking. There
are various types of deposits that can be made, and the bank pays interest on the deposits. If a person or an organization is
in need of funds, the bank extends loans and charges interest from the borrower. The profit of the bank emanates from the
difference in the interest rate that they charge the borrower and the interest that they pay to the depositors.
Types Of Banks
The banking activities of commercial banks concentrate on creating revenue from various sources such as foreign exchange,
granting of loans, payment of interest, operating savings and current accounts, providing safe deposit boxes, and trust services.
The apex bank of any country controls the activities of the other banks, and it fixes the rates of interest that the other banks can
charge. It also regulates the amount of loan that the banks can give and the amount of wealth that they can hold. It ensures
transparency and safeguards the interests of the citizens.
Investment banking is done by commercial banks for the benefit of its clients. The bank makes prudent investments of the resources
of their clients in order to generate more profit for them as compared to the interest that the bank would be paying merely for keeping
the money in the bank. Even companies are advised regarding profitable business transactions.
For the economy of any country to have a sustained growth, the banking system has to be dynamic, vibrant, and effective.
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