Banks

History

The early history of modern banking had its origins in international trading. The first Western banks appeared in Italy during the 14th century and mainly facilitated money exchanges and provided small loans to prevent the violation of Catholic Church prohibitions against usury, defined as lending money at interest. Other early financial centers were located in commercial trading centers in countries such as Switzerland, France, Belgium, and Holland. By the 18th century, banks had begun lending at interest as well as providing other new services, including savings accounts, the use of collateral to back loans, and the issuance of paper currencies. Banks appeared in the United States at the end of the 18th century and in Japan by the end of the 19th century.

Central banks have a history dating back to the late 17th century in Europe. Central banks are sponsored by national governments and can be either state or privately owned. Early functions of central banks included the financial support of national government spending, the standardization of national financial systems, the stabilization of currency value and exchange rates, and employment promotion. Central banks received government favor in return, and many were monopolies. One central debate surrounding central banks has been whether or not they should operate independently of national governments. Central banks later began to serve as depository institutions and lenders of last resort for other types of banks, which can help avoid national and global economic crises. They also help establish and oversee financial systems and monetary policies.

Central banks’ role in the establishment of monetary policies had both domestic and international impacts. For example, these banks play a role in determining international currency exchange rate policies, help determine market investors’ actions through their economic forecasts, and can aid in times of financial crisis through the raising or lowering of interest rates. Many developed countries that wish to aid developing countries see central banks as playing a key role in their economic development through their role in maintaining low inflation rates and stable currency values.

Changes in the Banking Industry

The late 20th and early 21st centuries saw a number of key changes in the banking industry, including globalization, consolidation, and deregulation. Deregulation in many countries had a global impact through its encouragement of banks’ entries into foreign sectors of the market. Consolidation and mergers also led to the emergence of large national banks with an expanded global market presence. Mergers also took place between banks and insurance brokers because of deregulation, resulting in the offering of new services to bank customers. One popular new service was the banking industry's expansion into insurance and brokerage services, although some countries legally forbid banks from providing these services.

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