The origins of banking trace back to the earliest civilisations, where rudimentary forms of banking were practised by merchants who extended grain loans to farmers and traders. This practice was prevalent as early as 2000 BCE in regions such as Assyria, India, and Sumeria. These transactions were based on trust and mutual benefit, forming the bedrock of future financial systems.
In ancient Greece and later during the Roman Empire, banking activities were conducted primarily in temples. These served as centres where lenders issued loans, accepted deposits, and exchanged money. Simultaneously, archaeological findings from ancient China and India also provide compelling evidence of early forms of money lending.
History of Banking
Medieval and Renaissance Banking
A more structured and institutionalised banking system emerged during the medieval and Renaissance periods in Italy, particularly in the affluent and influential cities of Florence, Venice, and Genoa. By the 14th century, powerful families such as the Bardi and Peruzzi had established wide banking networks across Europe, marking a significant evolution in financial practice.
The most notable among these was the Medici Bank, founded by Giovanni di Bicci de’ Medici in 1397, which became a model for modern banking operations. It was known for introducing double-entry bookkeeping and other sophisticated financial instruments of the time.
The oldest surviving bank in the world is Banca Monte dei Paschi di Siena, which has been in continuous operation since 1472. Before 2019, Banco di Napoli—established in 1463—was also among the oldest, before ceasing operation as an independent institution.
Spread Across Europe and Beyond
The development of banking spread from northern Italy into the Holy Roman Empire, and by the 15th and 16th centuries, it had reached northern Europe. The 17th century saw pivotal innovations in Amsterdam, including the establishment of the Bank of Amsterdam, which introduced features such as central banking concepts and standardised currency exchange.
In the 18th century, London emerged as a significant financial hub, laying the foundation for modern commercial banking in Britain and its colonies.
Modern Transformations
The 20th century marked a new era in banking, defined by technological advances. The advent of telecommunications and computing revolutionised the sector, enabling banks to expand their size and geographical reach significantly.
However, the global financial crisis of 2007–2008 revealed systemic vulnerabilities. Numerous banks collapsed—including some of the largest institutions—bringing renewed focus to bank regulation and risk management.
Ancient Economic Structures and Monetary Forms
As humans shifted from a nomadic lifestyle of hunting and gathering to agricultural societies, around 12,000 BCE, stable economic relations began to emerge. This transition occurred in the Fertile Crescent, northern China, Mesoamerica (Mexico), and the eastern United States, laying the groundwork for organised trade and eventually, banking.
Early forms of money—such as grain money and cattle money—were in use as early as 9000 BCE. Additionally, obsidian, a valuable volcanic glass, was widely traded in Anatolia and used to craft tools during the Stone Age, dating as far back as 12,500 BCE.
By the 3rd millennium BCE, the trade in obsidian within the Mediterranean had been largely replaced by more advanced trade in copper and silver.
Early Record-Keeping and Regulation
The need to track resources led to the development of record-keeping systems. Artefacts such as bulla and tokens have been discovered in Near Eastern archaeological sites, dating from 8000 to 1500 BCE, used to count and manage agricultural produce.
By around 3200 BCE, primitive accounting systems began to record commercial transactions. Mnemonic symbols, used in temples and palaces, evolved to represent stockpiles of goods and exchanges.
One of the earliest known references to banking regulation is found in the Code of Hammurabi, inscribed on clay tablets around 1700 BCE. These laws governed loan practices and interest rates in ancient Babylon. Later, during the Achaemenid Empire (after 646 BCE), more structured evidence of banking practices can be found in Mesopotamia.
Urbanisation and Institutional Foundations
By the 5th millennium BCE, urban settlements such as Eridu in Sumer had formed, often built around central temples, which acted as economic and spiritual centres. This urbanisation enabled the emergence of structured institutions and formalised financial transactions. Cities like Tell Brak and Uruk were among the earliest to exhibit signs of urban civilisation—providing a structural foundation for banking as an institutional activity.
The Earliest Forms of Banking
The origins of banking can be traced back to the ancient civilisations of Asia, the Middle East, and the Mediterranean, where rudimentary financial systems gradually developed into more organised institutions. Although these systems did not function as modern banks do today, they laid the essential groundwork for the evolution of lending, deposit-taking, and financial record-keeping.
Banking in Mesopotamia and Persia
Banking—or more accurately, quasi-banking—dates back as far as the late 4th millennium BCE, emerging in the city-states of Mesopotamia, including Babylonia and Assyria.
Temples and the Birth of Deposits
Temples were central to early economic life, acting as secure places where wealth could be deposited. Both temples and royal palaces offered lending services, though temples were more prominently engaged in such transactions. For example:
- In Babylonia circa 2000 BCE, those depositing gold were charged a fee—sometimes as much as one-sixtieth of the total deposit.
- Loans were often issued in the form of seed-grain, to be repaid from the subsequent harvest.
- These transactions were recorded on clay tablets using cuneiform script, marking the beginning of documented interest-bearing loans.
This system continued well into the Hellenistic period. As late as 209 BCE, Antiochus III is known to have plundered the temple of Aine in Ecbatana, seizing gold and silver reserves deposited there.
The Code of Hammurabi (c. 1792–1750 BCE)
The Code of Hammurabi, one of the oldest known legal texts, provides a detailed legal framework for financial dealings:
- Law 100: Required that loan repayment terms be specified in writing, including maturity dates.
- Law 122: Mandated that depositors present all valuables and a signed contract of bailment to a notary when depositing with a banker.
- Law 123: Stated that bankers were not liable for losses if the notary denied the existence of a contract.
- Law 124: Guaranteed that a depositor with a notarised contract had the right to redeem their entire deposit.
- Law 125: Held the banker liable for theft of deposits under their care.
These regulations show a clear concern for safeguarding the interests of depositors and maintaining public confidence in early financial services.
Banking Families: Egibi and Murashu
Later historical records mention notable Babylonian banking families, such as:
- The Egibi family (active post-1000 BCE to the reign of Darius I) is referred to by some scholars as a “lending house” or early professional banking entity.
- The Murashu family was also involved in financial activities, offering credit and managing commercial ventures.
While some researchers argue these families practiced banking, others suggest their operations were more accurately entrepreneurial than strictly financial.
Banking in Ancient India
Evidence of financial practices in ancient India dates back to the Vedic period (beginning circa 1750 BCE), when loans were commonly issued.
Maurya Dynasty (321–185 BCE)
During the Mauryan era, an instrument known as the Ayesha functioned similarly to a modern bill of exchange. It was an order from one party to a banker to pay a specific sum to a third party. Such practices became widespread during the Buddhist period, with merchants in urban centres often exchanging letters of credit—a clear indication of early banking sophistication.
Banking in Ancient China
During the Qin Dynasty (221–206 BCE), standardised coins facilitated trade across China and led to the development of letters of credit. These were often issued by merchants who operated in ways comparable to modern banks—providing financial trust and mobility of capital across regions.
Banking in Ancient Egypt
The Egyptian grain-banking system was so advanced that some scholars compare it to a modern commercial bank, particularly in scale and operational scope. During the rule of the Greek Ptolemies, regional granaries evolved into a centralised banking network based in Alexandria, functioning as one of the earliest forms of a government central bank.
Types of Egyptian Banks
According to Muir (2009), two types of banks existed:
- Royal banks: Administered by the state.
- Private banks: Operated by individuals.
Records of tax-related banking transactions, known as peptoken-records, provide insight into the structure and functions of these institutions.
Banking in Ancient Greece
Greece provides some of the earliest documented evidence of banking practices:
- The treatise Trapezitica is considered the first formal account of banking operations.
- The orator Demosthenes frequently referenced the practice of issuing credit in his speeches.
- Xenophon, in his essay On Revenues (circa 353 BCE), is credited with the first suggestion of a joint-stock banking company, resembling the concept of a modern corporate bank.
The development of Greek banking was enabled by the transformation of the city-state system following the Persian Wars, which allowed private citizens to own wealth independently of the state, thus fostering a nascent capitalist society.
The Trapezitai
The trapezitai were private individuals who conducted banking activities during the 5th century BCE:
- They exchanged money.
- Provided credit.
- Held deposits.
- And facilitated commerce beyond barter, transitioning into a money-based economy.
Classical Antiquity – The Specific and Geographical Focus of Early Banking
???? The Specific Focus of Funds
The earliest known forms of financial storage were primitive money-boxes, referred to as thēsauros (ΘΗΣΑΥΡΌΣ), which resembled the construction of a beehive. Such artefacts have been discovered in the tombs of Mycenae, dating from approximately 1550–1500 BCE.
In ancient Greece, both private individuals and civic institutions—most notably temples—played a central role in conducting financial transactions. According to Gilbart, these temples served as secure repositories of wealth, acting as proto-banking institutions. Among the most prominent of these temples were:
- The Temple of Artemis at Ephesus,
- The Temple of Hera on the island of Samos, and
- The Temple of Apollo at Delphi.
These temples carried out a variety of financial activities, including the safekeeping of deposits, currency exchange, coin validation, and even the issuance of loans.
The first treasury of the Apollonian temple is believed to have been constructed before the end of the 7th century BCE. Additionally, the city of Siphnos financed the construction of its own temple treasury during the 6th century BCE.
Prior to the Persian invasions of 480 BCE, the Acropolis temple in Athens, dedicated to Athena, was used to store funds. Following its destruction, Pericles rebuilt the depository, this time integrated within the Parthenon.
Later, during the Ptolemaic reign in Egypt, state depositories replaced religious temples as the preferred location for secure financial storage. Historical records confirm that this shift occurred by the end of the reign of Ptolemy I (305–284 BCE).
With the increasing complexity of financial operations, the construction of new dedicated buildings emerged. These banking facilities were often built around the central courtyards of the agora, or public market areas, within Greek cities.
???? The Geographical Focus of Banking Activities
By the late 3rd and 2nd centuries BCE, the Aegean island of Delos had become a major banking centre. During the 2nd century BCE, the city had at least three established banks and one temple depository in operation.
At the height of the Hellenistic period, as many as thirty-five Greek cities had private banks (Roberts, p.130). Within the Greco-Roman world of the 1st century CE, three cities stood out as wealthy hubs of banking activity:
- Athens
- Corinth
- Patras
???? Loans in Classical Greece
Although references to loans are found in classical writings, only a limited number were provided by banks. Notably, banks in Athens were involved in lending, and records show that loans were occasionally issued at an annual interest rate of 12%.
In total, eleven banker-issued loans are known to have occurred within Athens during this period (Bogaert, 1968). In many cases, banks operated discreetly, issuing loans without public knowledge and protecting the identity of their depositors. This form of financial intermediation was referred to as dia tēs trapazēs, meaning “through the bank.”
Temples also engaged in lending. For example, a loan was made by a temple in Athens to the state during 433–427 BCE.
????️ Banking in Ancient Rome
???? Temples and Early Roman Banking
Roman banking initially centred around temples, which served as both places of worship and financial activity. Notably, coin minting took place within temples, especially at the Temple of Juno Moneta. However, with the establishment of the Roman Empire, the role of temples in public finance diminished, and private depositories began to assume their place.
The Roman state, inheriting many financial practices from Greece (Parker), began formalising banking by the mid-4th century BCE. In 352 BCE, a rudimentary public bank (dēmosía trápeza) was established following a consular decree that appointed a commission of mensarii to manage debt among the lower classes.
Further developments occurred in 325 BCE, when a group known as the quinqueviri mensarii was commissioned to lend money to those in need—provided they had collateral—drawing on funds from the public treasury.
According to historian J. Andreau, Roman banking shops were first opened in public forums between 318 and 310 BCE.
Religious Restrictions on Interest
In the ancient Near East, most early religious systems and the secular codes derived from them did not forbid usury (the charging of interest). These societies perceived inanimate objects—such as plants, animals, or money—as living entities capable of reproduction. Consequently, lending “food money” or monetary tokens, including olives, dates, seeds, or animals, was common practice as far back as circa 5000 BCE. Civilisations like the Mesopotamians, Hittites, Phoenicians, and Egyptians regarded charging interest as legal, often with rates fixed or regulated by the state.
Judaism
The Torah and later parts of the Hebrew Bible criticise the practice of charging interest, though interpretations of this prohibition vary. A widely held understanding is that Jews were forbidden to charge interest on loans to fellow Jews but permitted to do so in transactions involving non-Jews. However, historical texts show numerous instances where this rule was circumvented.
For example, Deuteronomy 23:19–20 states:
“Thou shalt not lend upon interest to thy brother: interest of money, the interest of victuals, the interest of anything that is lent upon interest. 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…”
This suggests a dual standard applied according to the borrower’s identity.
In general, avoiding debt was considered prudent to prevent bondage or dependence. Debt was not to be used frivolously but only in times of need. Prophets condemned the people for violating laws against usury.
The interpretation allowing interest on loans to non-Israelites was later used in 14th-century Europe to justify Jewish moneylenders charging interest within Christian societies. This conveniently sidestepped the prohibitions on usury in both Judaism and Christianity: Christians did not lend money but could still borrow from Jews who charged interest.
Christianity
Initially, Christian churches banned the charging of interest (usury), which extended even to fees for currency exchange services. Over time, however, as the nature of money evolved, the term ‘usury’ became restricted to excessive or illegal interest rates, while moderate interest became acceptable.
The concept of “Christian finance” encompasses banking and financial activities that emerged several centuries ago, despite official church prohibitions on usury and suspicion towards moneylending, which was seen as distinct from productive enterprise.
Examples include the financial operations of the Knights Templar in the 12th century, the Mounts of Piety (established 1462), and the Apostolic Chamber, which was directly linked to the Vatican. These institutions engaged in money lending, guarantees, securities issuance, and investments.
The rise of Protestantism in the 16th century diminished the Catholic Church’s influence and made its strictures against usury less relevant in northern Europe, fostering banking development. By the late 18th century, Protestant merchant families increasingly entered banking in countries such as the United Kingdom (e.g., Barings), Germany (Schroders, Berenbergs), and the Netherlands (Hope & Co., Gülcher & Mulder).
New financial instruments and activities expanded banking’s role well beyond its medieval origins. Some scholars attribute Calvinism with laying the groundwork for the later emergence of capitalism in Northern Europe, seeing Calvinist attitudes as a challenge to the medieval condemnation of usury and profit itself.
Notably, sociologist Max Weber argued that the Protestant work ethic stimulated an uncoordinated mass action that significantly influenced capitalism’s rise. Similarly, Rodney Stark proposed that Christian rationality was a fundamental driver behind the success of capitalism and the so-called Rise of the West.
Islam
The Quran strictly forbids charging interest (riba) on loans. For example:
“O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful” (Quran 3:130)
“And Allah has permitted trade and has forbidden interest” (Quran 2:275).
The Quran views the taking of interest and illicit profit-making as unethical, not only prohibited for Muslims but also condemned in earlier communities. Verses such as Quran 4:160–161 state:
“Because of the wrongdoing of the Jews We forbade them good things which were (before) made lawful unto them, and because of their much hindering from Allah’s way, And of their taking usury when they were forbidden it…”
Islamic jurisprudence (fiqh) distinguishes two types of riba: one is an increase in capital without any service provided, prohibited by the Quran; the other involves unequal exchanges of commodities, prohibited by the Sunnah. Consequently, trading in promissory notes, including fiat money and derivatives, is forbidden.
Despite these prohibitions, the 20th century witnessed the development of an Islamic banking model, which operates without charging interest. Instead, Islamic banks generate profit through alternative methods such as charging fees, engaging in risk-sharing, and using leasing or different ownership arrangements.
Medieval Europe
The origins of modern banking can be traced back to medieval and early Renaissance Italy, particularly to prosperous northern cities such as Florence, Venice, and Genoa.
The Emergence of Merchant Banks
The earliest banks were essentially merchant banks, which were established by Italian grain merchants during the Middle Ages. As the merchants and bankers of Lombardy gained prominence—largely due to the fertile cereal crops of the Lombard plains—they attracted many displaced Jewish communities fleeing persecution in Spain. These Jewish traders brought with them ancient financial practices originating from the Middle and Far Eastern silk routes.
Initially, these methods were intended to finance long-distance trading expeditions, but they soon adapted them to the financing of grain production and trade.
Since Jews were prohibited from owning land in Italy, they entered the bustling trading piazzas and halls of Lombardy, setting up benches alongside local traders to conduct crop trade. The Jewish traders enjoyed a significant advantage: Christian doctrine strictly forbade usury, defined as charging interest on loans (Islam similarly condemns usury). However, Jewish traders were not bound by the Church’s prohibitions, allowing them to lend money to farmers against their crops in the fields—loans which carried significant risk and would have been considered usurious by Christian standards.
Through this system, they secured rights to grain sales based on future harvests. They advanced payments against the expected delivery of grain destined for distant ports, profiting from the difference between the discounted present price and the future price. This form of two-sided trade was complex and time-consuming, leading to the rise of a class of merchants who dealt primarily in grain debt rather than the physical grain itself.
Financing and Underwriting Functions
Jewish traders effectively combined both financing (credit provision) and underwriting (insurance) roles. Financing took the form of crop loans at the start of the growing season, enabling farmers to undertake seeding, cultivation, and harvesting. Underwriting was practised through crop or commodity insurance, which guaranteed delivery of the crop to its buyer—usually a merchant wholesaler.
Moreover, these merchants arranged alternative supply sources, such as grain stores or different markets, to ensure that the buyer received their goods even in the event of crop failure. They could also sustain farmers or producers through difficult periods such as droughts by issuing insurance policies protecting against crop loss.
Evolution of Merchant Banking
Merchant banking evolved from merely financing trade on behalf of clients to settling transactions for others, eventually expanding to holding deposits to settle ‘Gillette’—notes written by brokers who dealt in the actual grain. The term “bank” itself derives from the Italian word banca, meaning “bench” or “counter,” referring to the benches merchants used in grain markets as centres for conducting business.
Deposited funds were originally held to settle grain trades but were often utilised in the meantime for the bench’s own trading activities. The term bankrupt comes from the Italian phrase banca rotta, meaning “broken bench,” describing the situation when a trader lost the deposits entrusted to them. The familiar English expression “being broke” shares a similar origin.
The Crusades and the Rise of Medieval Banking
The Crusades and the Revival of Banking
During the 12th century, the financing of the Crusades created a significant demand for the transfer of large sums of money across vast distances, which in turn stimulated the re-emergence of banking in Western Europe. For instance, in 1162, Henry II of England imposed a tax specifically to support the Crusades. This was the first in a series of levies aimed at funding these military campaigns.
The Knights Templar and the Hospitallers played a crucial role as bankers for Henry II and others in the Holy Land. Their extensive landholdings throughout Europe between 1100 and 1300 mark one of the earliest forms of continent-wide banking. The Templars operated a system whereby local currency could be deposited at one of their castles, receiving in exchange a demand note. This note was redeemable at any of their other castles across Europe, thus enabling the secure transfer of money without the usual risk of robbery during travel.
Discounting and Overcoming Usury
An important financial innovation during this period was the development of a prudent method of discounting interest to depositors, by offering returns linked to specific trades or ventures, thereby circumventing the prevailing religious objection to usury (charging interest). Essentially, this involved selling an “interest” in a particular commercial enterprise, which reflected an ancient method of financing long-distance trade.
Role of Medieval Trade Fairs
Medieval trade fairs, such as those held in Hamburg, played a curious but significant part in the growth of banking. Moneychangers at these fairs began issuing documents that could be redeemed at other fairs, either in different countries or at future dates at the same venue, in exchange for hard currency. These transferable documents, often discounted to reflect an implicit interest rate, gradually evolved into what became known as bills of exchange.
Bills of exchange allowed merchants and bankers to transfer large sums of money without physically transporting gold or other valuables, thus avoiding the costs and risks associated with hiring armed guards or facing theft.
The Italian Bankers and the Foundations of Modern Banking
Venice and Early Public Banking
While the Republic of Venice is sometimes mistakenly credited with establishing a public bank in the 12th century, it did not formally create such an institution until 1587. Nonetheless, its Grain Office functioned as a banking entity during the 13th and 14th centuries, handling deposits and lending operations. Furthermore, Venice’s innovative system of transferable public debt has been recognised as an important precursor in banking history.
Legal Innovations by Italian Bankers
By the mid-13th century, groups of Italian Christians, notably the Cahorsins and Lombards, developed ingenious legal mechanisms—legal fictions—to circumvent the Church’s ban on Christian usury. For example, one common workaround was to grant loans without interest, but require insurance against potential loss, injury, or delayed repayment, effectively embedding a cost akin to interest.
These Christian bankers, derisively called the “pope’s usurers,” diminished the reliance of European monarchs on Jewish moneylenders. Over time, a nuanced distinction emerged within Church law between consumable goods (like food and fuel) and non-consumables. Charging interest on loans involving non-consumable goods became increasingly tolerated, further shaping the evolution of banking practices.
The Rise and Reach of Italian Banking
Florentine Banking Families and the Medici Legacy
Among the most influential banking dynasties of the medieval era were those from Florence, a city that became a major financial hub in Europe. Notable families included the Acciaiuoli, Mozzi, Bardi, and Peruzzi, who expanded their operations by establishing banking branches across various parts of Europe.
Perhaps the most renowned of all was the Medici Bank, founded in 1397 by Giovanni di Bicci de’ Medici. This institution continued its operations until 1494, playing a pivotal role in both the financial and political landscapes of Renaissance Europe. While the Medici Bank is often celebrated in historical records, it is worth noting that Banca Monte dei Paschi di Siena S.p.A. (BMPS), founded in Italy, remains the oldest surviving banking organisation still in operation today.
Expansion and Crisis of Italian Banks
By 1327, Italian bankers had established a strong presence beyond their borders; the city of Avignon, for example, housed 43 branches of Italian banking houses. However, the success of these institutions was not without setbacks. In 1347, King Edward III of England defaulted on substantial loans, an act which contributed to the subsequent bankruptcies of the Bardi in 1343 and the Peruzzi in 1346.
Despite such setbacks, the influence of Italian banking continued to grow, particularly in France, where the rise of Lombard moneychangers marked a new phase. These financiers travelled from city to city along the busy pilgrim routes, facilitating trade and commerce. Two important cities during this period were Cahors—the birthplace of Pope John XXII—and Figeac.
Religious Opposition and Shifts in Financial Authority
A satirical image titled “Of Usury”, from Sebastian Brant’s Stultifera Navis (The Ship of Fools)—with woodcuts attributed to Albrecht Dürer—illustrates the growing concerns surrounding the practice of usury.
By the late Middle Ages, Christian merchants openly lent money at interest, gradually eroding the long-held dominance of Jewish moneylenders, who had previously occupied a privileged, albeit controversial, position in medieval finance.
Backlash Against Italian Free Enterprise
After 1400, political sentiment began to turn against the methods employed by Italian free-market bankers. In a series of increasingly hostile acts:
- In 1401, King Martin I of Aragon ordered the expulsion of several Italian bankers.
- In 1403, King Henry IV of England issued a ban on profit-making by foreign bankers within his kingdom.
- In 1409, Flanders imprisoned and expelled Genoese bankers.
- By 1410, all Italian merchants had been expelled from Paris.
Despite this resistance, Italian financial ingenuity persisted. In 1407, the Bank of Saint George was founded in Genoa. Regarded as the first state deposit bank, it would go on to exert significant influence over Mediterranean commerce.
15th–17th Centuries: Expansion of Banking
Italy
During the period from 1527 to 1572, several influential banking families rose to prominence in Italy, including the Grimaldi, Spinola, and Pallavicino families—renowned for their affluence and political sway. The Doria, Pinelli, and Lomellini families, while perhaps less dominant, also played significant roles in the Italian banking scene. These families contributed to the growth of sophisticated banking systems, particularly in Genoa and other northern Italian cities.
Spain and the Ottoman Empire
In 1401, Barcelona—then capital of the Principality of Catalonia—established the Taula de Canvi or “Table of Exchange,” modelled after the Venetian system. It is considered the first public bank in Europe, pioneering formalised deposit and exchange functions.
In the 16th century, significant shifts occurred in the Ottoman Empire. According to historian Halil İnalcık, Marrano Jews (notably Doña Gracia of the House of Mendes) fleeing persecution in Iberia introduced elements of European capitalism and mercantilism to the Ottoman realm. These refugees, often wealthy and experienced in finance, brought advanced banking techniques and integrated them into the Ottoman economy.
Among them, the Mendes family, a prominent Marrano banking house, settled in Istanbul in 1552 under the protection of Sultan Suleiman the Magnificent. When Alvaro Mendes arrived in 1588, he is said to have brought with him 85,000 gold ducats. The family quickly became a dominant force in state finance and trade between the Ottoman Empire and Europe.
The Role of Pompeius Occo
Pompeius Occo (1483–1537), originating from a North German background, settled in Amsterdam in 1511 as a representative of the powerful Fugger banking house of Augsburg. He played a key role in expanding the Fugger influence in Northern Europe.
Jews, like the Armenians, thrived in Baghdad under Ottoman rule in the 18th and 19th centuries, performing critical financial roles such as moneylending and informal banking—activities generally prohibited to Muslims under Islamic law.
Court Jews
The term Court Jew refers to Jewish financiers and businessmen who served Christian European noble houses, particularly in the 17th and 18th centuries. These individuals were precursors to the modern financier or Treasury Secretary.
Their responsibilities included:
- Tax farming
- Loan negotiations
- Mint supervision
- Revenue innovation
- Raising war funds
Beyond handling national finance, Court Jews often acted as personal bankers to royalty, managing diplomatic expenditures and lavish lifestyles.
In return, they received special privileges and exemptions. Court Jews were particularly prevalent in Germany, Austria, and the Netherlands, but also found in Denmark, England, Hungary, Italy, Poland, Lithuania, Portugal, and Spain. According to scholar Max I. Dimont, nearly every duchy within the Holy Roman Empire had a Court Jew.
Germany
In southern Germany, the Fugger and Welser families emerged in the 15th century as dominant financial powers. By the 16th century, they controlled much of the European economy, setting standards in international finance. The Fuggers, in particular, established Fuggerei, the first German social housing complex for the poor, in Augsburg—a site still in existence today, even though the original Fugger Bank (1486–1647) no longer operates.
The Dutch significantly influenced the banking systems of Northern German city-states. A notable legacy is Berenberg Bank, founded in 1590 in Hamburg by Dutch brothers Hans and Paul Berenberg. It remains the oldest bank in Germany and the second-oldest in the world, still owned by the Berenberg family.
The Netherlands
In the 16th and 17th centuries, a surge of precious metals from the New World, Japan, and the Gold Coast entered Europe, contributing to inflation and transforming banking.
Thanks to:
- The free coinage system
- The creation of the Bank of Amsterdam
- A rise in trade and commercial activity
the Dutch Republic became a magnet for bullion and capital. Here, advanced practices such as fractional-reserve banking and payment clearing systems were further developed and would later spread to England and beyond.
England
Although the Royal Exchange of London was founded in 1565, banking as we understand it today did not take root in England until the 17th century. Unlike their continental counterparts, English financial institutions developed more slowly, only gaining traction after adopting many of the commercial innovations seen in Amsterdam.
17th–19th Centuries – The Emergence of Modern Banking
????️ Rise of Structured Banking Systems
By the close of the 16th century and throughout the 17th, traditional banking functions—such as accepting deposits, money-lending, currency exchange, and fund transfers—became increasingly formalised. A significant development during this period was the issuance of bank debt instruments, which began to serve as substitutes for physical gold and silver coins.
These innovations provided a safer, more efficient medium of exchange and introduced a money supply more attuned to commercial demand. The practice of “discounting” business debt—offering immediate funds against future payments—also took root, stimulating commercial and industrial expansion.
By the end of the 17th century, banks had become crucial to the financial needs of European states, many of which were frequently engaged in warfare. This dependency gave rise to government regulation and the formation of the first central banks. The successful adoption of these banking practices in Amsterdam and London led to their dissemination across Europe.
⚒️ The Goldsmiths of London and the Birth of Fractional Reserve Banking
One of the most pivotal developments in modern banking emerged in 17th-century London, where wealthy merchants deposited their gold with local goldsmiths. These goldsmiths, who had secure vaults, provided safekeeping services for a fee. Upon deposit, they issued receipts certifying the amount and quality of the stored metal. Initially non-transferable, these receipts gradually evolved into a form of currency.
Eventually, goldsmiths began lending out the deposited gold, issuing promissory notes—which later evolved into banknotes—as evidence of the loan. This practice introduced the concept of money as debt, in contrast to money as intrinsic value (i.e. precious metals).
This marked the beginning of fractional reserve banking, where only a fraction of total deposits were retained in reserve to satisfy withdrawal demands. For this system to function, the promissory notes needed to be:
- Accepted in trade, which required general confidence in the issuer;
- Legally enforceable, meaning the holder had an unconditional right to payment;
- Negotiable instruments, capable of being transferred to third parties.
Although the concept of negotiability was not entirely new, it was not universally accepted. In fact, a specific Act of Parliament in 1704 was required to confirm the negotiability of goldsmiths’ notes, overriding court rulings that had previously denied this based on commercial customs.
???? The Modern Bank Takes Shape
The first institutions resembling modern banks began to solidify in this period. In 1695, the Bank of England became one of the earliest banks to issue paper currency, following the short-lived banknotes of Stockholms Banco in 1661. These early notes were hand-written and promised to pay the bearer on demand in specie (coin). By 1745, printed notes in standard denominations (£20 to £1,000) were introduced, and in 1855, fully printed, bearer banknotes (not requiring a named payee or cashier’s signature) became the norm.
Throughout the 18th century, banking services expanded significantly, including:
- Clearing systems for interbank payments,
- Investment in securities,
- Introduction of cheques (in use since the 1600s),
- Overdraft protection, the first of which was introduced in 1728 by the Royal Bank of Scotland.
Banks began convening in centralised venues to settle payments, leading to the creation of a bankers’ clearing house in London by the early 1800s. This system involved each bank paying cash to a central inspector, who redistributed the funds to balance transactions at the end of each day.
???? Banking and the Industrial Age
The Industrial Revolution and expansion of international trade, especially in London, led to a surge in new banks and financial activities. Prominent merchant-banking families—such as the Barings and Rothschilds—extended their reach across Europe, engaging in activities ranging from bond underwriting to foreign loans.
These merchant banks played a pivotal role in facilitating global commerce and were instrumental in England’s emergence as a leader in seaborne trade and finance.
In 1797, geopolitical tensions, including fears of French invasion, prompted the Bank of England to suspend cash payments. A panic caused by a minor French landing in Pembrokeshire spurred Parliament to authorise low-denomination banknotes, both from the Bank of England and regional banks—giving a significant boost to country banking.
The Evolution of Banking in China, Japan, and the Rise of Central Banking
???? Chinese Banking: From Draft Banks to Financial Hubs
During the Qing Dynasty, China witnessed the emergence of a nationwide private financial system, primarily developed by the Shanxi merchants. A significant innovation of this era was the creation of “draft banks” (票号 piào hào), which functioned much like modern banks by offering secure money transfers.
The first such institution, Rishengchang, was established in Pingyao around 1823. Over time, some of these large draft banks expanded their reach internationally, opening branches in Russia, Mongolia, and Japan to support cross-border trade. Throughout the 19th century, Shanxi Province became the de facto financial capital of Qing China.
However, with the decline of the Qing dynasty, the financial epicentre began to shift towards Shanghai, where modern, Western-style banks flourished. In the present day, China’s financial powerhouses include Hong Kong, Beijing, Shanghai, and Shenzhen, each playing vital roles in both domestic and global finance.
???? Japanese Banking: Meiji Reforms and Financial Modernisation
In 1868, following the Meiji Restoration, the Japanese government embarked on the ambitious task of developing a structured and functional banking system. Influenced heavily by French banking models, the government worked throughout the 1870s to create institutions that would support Japan’s rapid modernisation.
The Imperial Mint adopted British-made machinery during the early Meiji period, demonstrating Japan’s intent to integrate advanced technology into its financial infrastructure.
A key figure in shaping Japan’s later banking framework was Masayoshi Matsukata, whose financial policies laid the groundwork for the nation’s fiscal stability and eventual central banking system.
????️ The Rise of Central Banking
One of the earliest blueprints for central banking was the Bank of Amsterdam, which set the standard for banks acting as monetary exchange facilitators. However, a more formal central bank—Sveriges Riksbank—was established in Sweden in 1668, albeit briefly.
???? The Birth of the Bank of England (1694)
In late 17th-century England, the government under William III faced a severe shortage of public funds, needing £1.2 million (at 8% interest) to finance its war with France. With little public credit available, a bold plan was proposed: those who subscribed to the loan would be incorporated as “The Governor and Company of the Bank of England”.
The bank would:
- Hold exclusive rights to manage the government’s balances
- Enjoy a monopoly on issuing banknotes as a limited-liability corporation
- Accept government bonds and issue notes backed by them
Within 12 days, the £1.2 million was successfully raised—half of which was allocated to rebuild the Royal Navy. The idea, originally proposed by William Paterson and later actualised by Charles Montagu, 1st Earl of Halifax, came into force with the Tonnage Act of 1694, granting the Royal Charter on 27 July 1694.
Though initially a private bank, by the late 18th century the Bank of England was regarded as a public institution with growing civic responsibility. Following a currency crisis in 1797, where mass withdrawals led the government to suspend specie payments, criticisms emerged that the Bank had over-issued notes—an accusation it firmly denied.
???? Theoretical Foundations: Henry Thornton and Walter Bagehot
Henry Thornton, a prominent merchant banker and economic thinker, is widely considered the father of modern central banking. In 1802, he published An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, defending the Bank and offering a comprehensive explanation of Britain’s monetary system. He anticipated modern economic theories, such as the cumulative process, later developed by Knut Wicksell.
Another towering figure, Walter Bagehot, author of Lombard Street: A Description of the Money Market, advocated the central bank’s role as lender of last resort during crises—this principle later became known as “Bagehot’s dictum.”
???? Legal Frameworks and Expansion of Central Banks
Until the mid-19th century, commercial banks in Britain could issue their own banknotes. The Bank Charter Act of 1844 changed this, establishing a direct ratio between gold reserves and the Bank’s issuance of notes, and strictly curbing the rights of private banks to print currency. This institutionalised the principles of bullionism and marked the beginning of a formalised central banking model.
After the Overend-Gurney crisis, the Bank of England formally embraced its role as lender of last resort in the 1870s.
???? Global Spread of Central Banks
Throughout the 19th and early 20th centuries, the concept of central banking spread worldwide:
- Banque de France was founded in 1800 during the War of the Second Coalition
- The U.S. Federal Reserve was established in 1913 through the Federal Reserve Act
- Australia founded its first central bank in 1920, followed by:
- Colombia (1923)
- Mexico and Chile (1925)
- Canada and New Zealand (1934)
By 1935, nearly every independent nation had adopted a central banking system—Brazil, one of the last holdouts, established a precursor in 1945, followed by the creation of its current central bank two decades later.
With decolonisation, many African and Asian nations also set up central banks or formed monetary unions, further solidifying the central bank as a cornerstone of modern economic infrastructure.
The Rise of Modern Finance – Rothschilds, Paris, and Building Societies
????️ The Rothschild Dynasty and International Finance
The Rothschild family played a pivotal role in the development of modern international finance during the early 19th century. Their impact on banking and infrastructure development reverberated across Europe and beyond.
In Frankfurt, the Rothschilds financed the Taunus Railway, inaugurated in 1840 as one of Germany’s earliest railways. However, their influence expanded far beyond railroads. In 1804, Nathan Mayer Rothschild began operations on the London Stock Exchange, trading in financial instruments such as government securities and foreign bills. By 1809, he had expanded into the gold bullion trade, which became a foundation of his business empire.
A crucial chapter in Rothschild history came during the Napoleonic Wars, when Nathan Rothschild, working closely with Commissary-General John Charles Herries, was tasked with transferring funds to pay Duke Wellington’s troops in Portugal and Spain. Later, the Rothschilds also facilitated subsidy payments to Britain’s allies, helping them raise new armies after Napoleon’s failed invasion of Russia.
To achieve this, the family established a vast continental network of agents, couriers, and shipping lines to discreetly and efficiently move both gold and intelligence. This elite private network famously enabled Nathan Rothschild to receive news of Wellington’s victory at Waterloo a full day ahead of the British government’s official dispatches—illustrating their unparalleled speed and reach in financial communication.
The Rothschilds’ involvement went beyond wartime financing. They were major supporters of railway development across the globe and helped fund monumental infrastructure, including the Suez Canal. In London, they amassed significant real estate, particularly in the prestigious Mayfair district.
Some of the significant enterprises founded or financed with Rothschild capital include:
| Year | Company/Institution | Present-Day Status |
| 1824 | Alliance Assurance | Now part of Royal & Sun Alliance |
| 1845 | Chemin de Fer du Nord (French Railways) | Merged into SNCF |
| 1873 | Rio Tinto Group | Major multinational mining corporation |
| 1880 | Société Le Nickel | Now Eramet |
| 1962 | Imétal | Now Imerys |
They also financed De Beers and Cecil Rhodes’ African expeditions, contributing to the creation of Rhodesia (modern-day Zimbabwe and Zambia).
During the Russo-Japanese War (1904–1905), the Japanese government turned to Rothschilds in London and Paris for assistance. The British consortium’s issuance of Japanese war bonds totalled an impressive £11.5 million, a monumental sum at the time.
The Rothschild Bank in London continued to play a vital role in international finance, notably hosting the gold fixing from 1919 to 2004.
???????? Paris and the Napoleonic Era of Finance
By the mid-19th century, Paris had risen as a major international financial hub, second only to London. Under Napoleon III, there was even an ambition to surpass London as the world’s financial capital. However, the Franco-Prussian War of 1870 significantly curbed Paris’s global influence.
One of the key developments in Parisian banking was the establishment of the French branch of the Rothschild family. In 1812, James Mayer Rothschild relocated from Frankfurt and founded De Rothschild Frères, a bank that gained prominence by funding Napoleon’s return from Elba. Over time, this institution became one of Europe’s leading banks, actively supporting France’s military campaigns and colonial expansion.
The Banque de France, originally founded in 1796, played a stabilising role during the financial upheaval of 1848, emerging as a powerful central bank.
In the same year, the Comptoir National d’Escompte de Paris (CNEP) was created during the republican revolution. It introduced innovative financing methods by combining private and public capital for large-scale projects and expanded through a national branch network, bringing banking services to a broader population.
????️ The Rise of Building Societies in Britain
Alongside the grand banking dynasties, a parallel financial revolution was taking place in Britain through the emergence of building societies—financial institutions owned by their members and operating as mutual organisations.
The origin of this model traces back to late-18th-century Birmingham, a town booming with small metalworking firms and a thriving civic culture. These prosperous entrepreneurs sought ways to invest in property, giving rise to community-based financing models.
Building societies often originated in taverns and coffeehouses, central gathering places where ideas were shared, and cooperation was fostered—a reflection of the Midlands Enlightenment.
The very first of these institutions was Ketley’s Building Society, established in 1775 by Richard Ketley, landlord of the Golden Cross Inn. Members contributed monthly to a collective fund, which was then used to construct homes for members. These homes acted as collateral, attracting further capital and sustaining a cycle of construction and investment.
This model proved highly effective. The first society outside the Midlands was founded in Leeds in 1785, and the idea spread rapidly throughout the country, eventually shaping the modern mortgage system.
The Rise of Mutual Savings Banks and Postal Savings Systems
???? Mutual Savings Banks
During the early 19th century, mutual savings banks emerged as a new form of financial institution. These were typically government-chartered organisations, distinct in that they had no capital stock and were owned collectively by their depositors. Members subscribed to a common fund, and the institutions operated with the goal of promoting thrift rather than generating profit for shareholders.
One of the earliest and most notable examples of a modern savings bank was the Savings and Friendly Society founded in 1810 by the Reverend Henry Duncan in Ruthwell, Scotland. Rev. Duncan’s objective was to instil habits of saving and financial responsibility among his working-class parishioners. His bank offered a safe place for modest earnings to be deposited and grew into a widely admired model.
Meanwhile, in Germany, pioneers like Franz Hermann Schulze-Delitzsch and Friedrich Wilhelm Raiffeisen laid the foundations for cooperative banking, which would eventually evolve into the credit union movement. Traditional banks had often ignored poor and rural populations, deeming them unbankable due to their irregular and limited cash flow and lack of collateral.
The cooperative model, with its emphasis on mutual support and democratic governance, addressed this gap. From northern Europe, the idea spread across the Atlantic to the United States around the turn of the 20th century, under various local names and institutional structures, eventually becoming a global movement.
???? The Postal Savings System
To further support those who lacked access to conventional banking services, particularly among the poor and rural communities, the postal savings system was introduced in Great Britain in 1861. The system aimed to:
- Provide a secure, accessible method for saving
- Encourage financial responsibility among the working classes
- Offer the government a low-cost means of financing the public debt
The initiative was strongly backed by William Ewart Gladstone, then Chancellor of the Exchequer. At the time, most banks operated in urban centres and catered largely to affluent clients. As a result, poorer individuals had little choice but to keep their money at home or carry it on their person—practices that were both insecure and inefficient.
The original Post Office Savings Bank permitted deposits of up to £30 per year, with a maximum account balance of £150. Interest was paid at a flat rate of 2.5% per annum on whole-pound deposits.
The success of this system inspired similar schemes across Europe, North America, and Japan. Notably, in 1881, the Dutch government established the Rijkspostspaarbank (State Postal Savings Bank), encouraging savings among workers. By the 1920s, they expanded services to include the Postcheque and Girodienst, allowing households to make payments through the postal network—an innovation that made modern banking more inclusive and convenient.
20th-Century Banking
???? The Panic of 1907: A Prelude to Reform
The early 20th century opened with a significant financial crisis in the United States, known as the Panic of 1907 or the Bankers’ Panic. This event witnessed widespread bank runs, as depositors scrambled to withdraw their funds amidst fears of insolvency. The panic exposed vulnerabilities in the American banking system and set the stage for future reforms.
???? The Great Depression: A Global Banking Catastrophe
![Crowd at New York’s American Union Bank during a bank run, early Great Depression]
The financial turmoil reached catastrophic levels with the Wall Street Crash of 1929, a key trigger of the Great Depression. At the time, margin requirements were just 10%, meaning brokerage firms would lend $9 for every $1 deposited by investors. When stock prices plummeted, brokers issued margin calls that could not be repaid, resulting in massive defaults.
As debtors failed to meet their obligations and depositors rushed to withdraw savings, numerous banks collapsed under the pressure. These bank runs eroded confidence in the system, and existing Federal Reserve regulations and government guarantees proved either insufficient or were not enforced.
- Within the first ten months of 1930 alone, 744 American banks failed.
- By April 1933, over $7 billion in deposits were frozen in failed or unlicensed banks following the March Bank Holiday.
- More than 9,000 banks failed during the 1930s.
????️ Regulatory Response: Glass–Steagall and the SEC
In response to the devastation, significant regulatory reforms were enacted. The Glass–Steagall Act of 1933, spearheaded by Senator Carter Glass and Representative Henry B. Steagall, formally separated commercial banking from investment banking, aiming to prevent high-risk investment activities from threatening consumer deposits.
Additionally, the Securities and Exchange Commission (SEC) was established in the United States in 1933 to oversee securities markets and restore investor confidence.
???? Post-War Global Finance: The Bretton Woods Institutions
The conclusion of the Second World War marked the beginning of a new global financial framework. Under the Bretton Woods Agreement of 1944, two pivotal institutions were founded:
- The International Monetary Fund (IMF)
- The World Bank
These bodies sought to stabilise currencies and encourage development. Supported by these institutions, commercial banks began extending credit to sovereign nations in the developing world. However, with the abandonment of the gold standard in 1971, coupled with rising inflation in the West, many of these loans defaulted—pushing several banks into bankruptcy.
???? Technological Evolution in Retail Banking
This era also heralded rapid advances in banking technology:
- 1959: The banking industry adopted machine-readable characters (MICR) on cheques, leading to the first automated sorting machines.
- Late 1960s: The introduction of Automated Teller Machines (ATMs) allowed customers to withdraw small sums (e.g., $25) without human interaction. Cards were often returned to the user at a later time.
- 1970s: The birth of electronic payment systems began, dramatically reshaping domestic and international transactions.
- 1973: The establishment of the SWIFT network (Society for Worldwide Interbank Financial Telecommunication) enabled secure, standardised messaging and payments between banks across borders.
As banks adopted computer systems, large clerical departments gave way to digital automation—paving the way for the modern banking landscape.
Deregulation, Globalisation & 21st-Century Transformation of Banking
Deregulation and Globalisation
The 1980s marked a turning point in global banking, ushered in by widespread deregulation of financial markets across several countries. In the United Kingdom, the landmark ‘Big Bang’ of 1986 in the City of London fundamentally reshaped the banking landscape. This deregulation enabled banks to access capital markets in new, more flexible ways and initiated a trend of mergers between retail banks, investment banks, and stockbrokers, thus creating universal banks offering a broad spectrum of financial services.
This transformation soon spread to the United States, particularly following the partial repeal of the Glass–Steagall Act in 1999, under the Clinton administration. American retail banks rapidly expanded their services into investment banking, driven by a surge in mergers and acquisitions.
Throughout the 1980s and 1990s, the financial services sector experienced exponential growth. This boom was fuelled by increased demand from corporations, governments, and other financial institutions, alongside favourable market conditions. Interest rates in the US plummeted—from roughly 15% for two-year Treasury notes to around 5%—while financial asset growth far outpaced global economic expansion.
A defining feature of this period was the internationalisation of financial markets. Japan’s significant foreign investments into the United States not only bolstered American corporations but also helped finance the federal government. Meanwhile, the dominance of the U.S. financial market began to wane as foreign stock markets gained popularity.
This explosive growth in foreign markets was driven by two key factors:
- A massive increase in savings in countries such as Japan
- The deregulation of financial markets in those nations, allowing greater capital activity
As a result, American banks and corporations began exploring global investment opportunities, leading to the development of mutual funds specialising in foreign stocks.
The increasingly globalised and competitive environment encouraged many banks to embrace the European-style universal banking model. These universal banks are authorised to offer the full range of financial services, invest directly in client businesses, and operate as comprehensive providers of both retail and wholesale financial solutions.
21st-Century Banking: Innovation, Integration, and Digital Shift
The dawn of the 21st century saw a further shift in banking dynamics. Traditional banks began consolidating, while non-bank financial intermediaries—such as large corporations—entered the financial services sector. These institutions began competing in fields including:
- Insurance
- Pension and mutual funds
- Money markets
- Hedge funds
- Loans and credit
- Securities trading
By 2001, four of the world’s fifteen largest financial services providers by market capitalisation were non-bank institutions, highlighting this shift.
The first decade of the century was also marked by a major technological revolution in banking. The rise of internet banking signalled a departure from traditional models. From 2015 onwards, developments such as open banking facilitated easier access for third parties to bank transaction data via standardised APIs and security protocols.
Simultaneously, financial innovation surged ahead. Non-bank financial products became increasingly profitable, prompting regulatory bodies like the Office of the Comptroller of the Currency (OCC) in the US to encourage banks to diversify. Banks were urged to explore new financial instruments, strengthening their resilience and blurring the lines between banking and non-banking institutions.
A prime example of this convergence emerged in 2020, when the OCC issued interpretive letters permitting:
- Banks to custody cryptocurrencies
- Banks to offer financial services to cryptocurrency companies
- The use of blockchain-based assets like stablecoins for settlement
In 2021, this regulatory evolution culminated in the OCC granting its first federal banking charter to Anchorage Digital, a digital asset platform, thereby legitimising digital finance within traditional banking frameworks.
The 2007–2008 Global Financial Crisis
The global financial crisis of 2007–2008 marked one of the darkest periods in modern banking history. The collapse of major financial institutions triggered severe disruptions, prompting emergency interventions by governments worldwide.
Notable events included:
- The fire sale of Bear Stearns to JPMorgan Chase (March 2008)
- The collapse of Lehman Brothers (September 2008), which triggered a widespread credit crunch
In response, governments globally resorted to bail-outs, nationalisations, and forced acquisitions of failing banks to stabilise the sector.
The Irish government took the first step on 29 September 2008 by providing wholesale guarantees to underwrite banks. Other nations quickly followed suit to prevent a systemic collapse of the global banking infrastructure. These actions popularised the phrase “too big to fail” and initiated serious debates about the moral hazard involved in rescuing institutions that contributed to the crisis.
