I am DR. Md. Makhluk Hasan, I am a banker. Now I am working as a FAVP of Social Islami Bank Ltd. Head Office: 90/1, Motijheel Commercial Area, Level-22, Dhaka-1215, Bangladesh. I think bankers need some articles time to time to run the business smoothly. Once a a day a customer ask me a question at that time I was not prepare the answer of that questions but I have a sheet of article in front of me on my table and I read it and answer the questions when I was the manager of Social Islami Bank Limited, Kishoreganj Branch, Kishoreganj, Bangladesh. To help my bankers friends and others who need it I intends to collect the articles and to post to my website so that bankers may get help to serve the people or the customers of the bank.
ORIGIN AND GROWTH OF BANKING
The origin of commercial banking can be traceable in the early times of human history. In the ancient Rome and Greece, the practice of storing precious metals and coins at safe places and loaning out money for public and private purposes on interest was prevalent. In England, banking had its origin with the London goldsmiths who in the 17th century began to accept deposits from merchants and others for safe keeping of money and other valuables. As public enterprise, banking made its first appearance in Italy in 1157 when the Bank of Venice was founded.
According to Crowther, modern banking has three ancestors: (a) the merchant, (b) the golds mith, and (c) the money-lender.
1. The Merchant. Trading activities require remittances of money from one place to another and this is one of the important functions of a bank. Because of the possibility of theft of metal- lie money during transportation, the traders, with high and widespread reputation or credit, began to issue documents which were taken as titles of money. This gave rise to the institution of ‘hundi’ or the letter of transfer whereby the banker dir ects another banker to pay the bearer of hiindi the specified amount of money and debit this amount against the drawer of hundi. Modern banks remit money to other places through cheques, drafts, or travelers’ cheques. Thus, merc hant banker forms the earliest stage in the evol ution of modem banking. In the words of Crowther, “To this day the title ‘merchant bankers’ is reserved by usage to the older, cosmop olitan and more exclusive private banking firms, nearly every one of which can trace its ancestry back to a trader in commodities more tangible (though hardly more profitable) than money.”
2. The Goldsmith. The gold smith ancestry of the modem banks is purely an English affair. Since goldsmiths dealt with precious metals, they necessarily provided secure safe to protect them.
In a period when money consisted of gold and silver, people, largely because of the danger of theft, started leaving their precious bullion and coins in the custody of goldsmiths. As the practice of safe-guarding others’ money became widespread the goldsmiths began imposing charges for the safe-keeping service.
3. Goldsmith Notes. The next stage in the development of banking came when the receipt for deposits with the goldsmiths began to be used as a means of payment. People started keeping gold, silver and coins with goldsmiths in exchange for warehouse receipts or goldsmith notes (i.e., claims against the deposits). These warehouse receipts became a medium of exchange and a means of payment.
4. The Money Lender. The next stage in the development of banking arises when the golds mith becomes a money-lender. This development was based on the goldsmiths’ discovery that it was not necessary to hold hundred per cent of the coins deposited with them. The goldsmiths soon realised that, on average, daily withdrawals were equal to daily deposits and only a contingency reserve was required for the periods when withdrawals exceeded deposits. After keeping the contingency reserve, the goldsmiths loaned out the remaining deposits on interest. In this way, the system of fractional reserve banking was born. Thus, goldsmith became a banker; he started performing the two major functions of a bank, i.e., receiving deposits and advancing loans.