The History and Functions of Banks – From Antiquity to the Present

The Birth of Banks in Babylon

It is generally accepted that it was in Babylonia in the 7th century BC that the first banks appeared. They were called business houses and performed credit and debit functions. For example, they issued money loans at 20% per year to all creditworthy citizens, accepted monthly contributions, provided for the needs of international trade, financed the army, collected taxes and supported the needs of the government.

A century later, the banking system of Babylon had developed to such an extent that analogues of the first cheque books appeared in the form of clay tablets. Bankers wrote down data on two "documents": the first was a receipt, and the second was a bearer "check."

Perhaps the most famous Babylonian banker was Nabu-ahhe-iddin, who lent money to King Belshazzar. Nabu-ahhe-iddin was also the first private moneylender whose records have been preserved by history.

The son of a merchant, who inherited only debts from his father, Nabu-ahhe-iddin worked as a scribe to give all his earnings to creditors. Having paid off his debts, the future banker was able to make a fortune and began to issue loans himself. Houses, slaves or grain were used as collateral.

If the borrower could not provide a guarantor or collateral, he received a loan at a huge interest rate of as much as 40% per annum. After the death of the first private banker, his descendants multiplied their capital many times over, surpassing the wealth of the largest temples of that time. The heirs of Nabu-ahhe-iddin were entrusted with their money by the wealthiest merchants of the Ancient East.

Banks in Ancient Greece

The city-states (polis) of Ancient Greece were scattered and lived separately, so each of them had its own money, which emphasized the independence of each region. It is noteworthy that the coins of one polis were not accepted in another, which created serious difficulties for trade and other economic relations.

That's when the responsible persons appeared, the trapezites. They performed the functions of intermediaries, exchanging money from different policies for a commission. The system was developing, and the money changers were replaced by full-fledged organizations providing cash and settlement services:

• safekeeping of money (deposits were opened on the basis of verbal agreements);
• payments on behalf of its clients;
• loans from the client savings fund secured by houses, slaves and land (issued only against documented obligations);
• transfers of funds between policies;
• investment of clients' savings.

Trapezites, as a new phenomenon, were initially not very trustworthy, and wealthy Greeks preferred to keep money in temples, which were inviolable, as well as to turn to priests and oracles for loans. There is no information about whether interest was paid on such loans.

The monetary reform carried out by Alexander the Great (the introduction of a single unit of payment throughout Greece) ended the existence of trapezites in their original form. The services of money changers were no longer required, so the country's banks reserved the right to issue loans, service deposits and transfer funds.

The word "trapezite" is translated from ancient Greek as "table, bench". In fact, it has the same meaning as the word banco in Italian – a money changer's table. In Athens, the center of Greece's economic activity, trapezites were mostly either stateless residents of other city-states or freed slaves.

One of the most famous trapezite slaves was Pasion, whose bank lasted for three generations and served up to 140 wealthy Athenians. Often, trapezites sued borrowers who delayed loan payments, and customers could file a lawsuit against a banker who was in no hurry to pay back the money entrusted to him. Proceedings rarely exceeded 30 days and sometimes ended in the bankruptcy of the trapezite.

Mensaria and Argentaria in Ancient Rome

In ancient Rome, minted coins with an applied denomination first appeared. Their value was equal to their value: the amount of silver in it was valued. This reform required a new approach to money. As a result, banking began to develop rapidly, a large number of banks appeared, which soon shared responsibilities among themselves:

• The Mensarii were engaged in currency exchange;
• The Argentarii were engaged in full-fledged banking, such as lending, accepting deposits, and transferring money.

How did the process of opening a deposit take place? The client brought the Argentarius a certain number of coins. They were carefully checked for authenticity, after which they were sealed in barrels or bags with the obligatory presence of witnesses. The controller was responsible for the safety of the money, who made all the necessary records. The popularity of the service was very high: wealthy Romans trusted banks and gave them their money for safekeeping.

Also, the rich willingly took loans when they did not have enough of their own funds for expensive purchases. Initially, they were issued without commission, after which interest was introduced. By the way, they were quite exorbitant and reached 60% per annum. If, for whatever reason, the Argentarii refused to lend, the Romans turned to the services of usurers (fenerators), but very reluctantly.

Banking in the Middle Ages

In the Middle Ages, trade between countries was actively developing, so the demand for the services of money changers grew again. Initially, the exchange of coins of different states was carried out by private merchants, mainly Italians. Their small desks could be found in the main squares of the cities. It was then that the word "banker" was introduced, and the services provided by money changers expanded significantly — they began to issue loans, open deposits and make payment orders for customers.

The Catholic Church, of which the Italians were adherents, was opposed to the bankers and often threatened those usurers who took interest on loans with non-burial and the Last Judgment. Bankers in France, England and other European countries where they preached Catholicism were persecuted. The debtor could appeal to the church, and the church, which had almost unlimited power, exempted him from paying the loan.

Soon the Jews mastered banking, but adherence to another faith did not save them from persecution. Bankers expelled from the country often bought the right to return home for huge sums of money in favor of the treasury.

But with the development of trade relations and industry, the rulers of medieval states simply could not refuse the intermediary services of bankers. Thus, this profession was recognized, and the first banks began to officially perform their functions. According to some sources, in 1463 the banks received a blessing from the Pope to excommunicate all loan debtors.

The First Official Bank

The first private official bank in the world is considered to be a cartel of private usurers from Genoa, who united in the partnership of St. George in the 12th century. The bank issued the first large loan to the authorities of the Republic of Genoa for the war in 1148, and they, in turn, in order to write off the accumulated debts, gave the partnership the authority to collect some taxes from citizens. Until 1407, the internal policy of the organization was formed, after which the Bank of St. George was officially formed.

At the beginning of the 16th century, the bank was the most influential in the world, and many rulers of European states sought meetings with the bank's management to obtain a loan. Until its closure in 1816, St. George's Bank issued loans and accepted deposits from the public, no longer being an influential structure of the world economy.

The first official state bank is considered to be the Bancó della Piaza de Rialto, which was established in Venice in 1584.

The oldest bank in the world is considered to be the Bank of Naples, established in 1539 and still existing.