EVOLUTION OF BANKING
Historical
Overview of Banking.
Before we move on to evolution of banking in Pakistan,
it would be quite interesting to have a glimpse of historical evolution of
banking over a period of time.
Today, we look around us chain of banks
rendering host of services to their customers. These banks cater to the
commercial and industrial needs of all countries which include die highly
developed and industrialized countries, the less developed countries and the
countries which are at the take-off stage. Thus there are the industrial banks,
the commercial banks, the joint stock banks, the co-operative banks, the
agricultural banks, rural development banks, lead banks and so many other types
of banks and credit institutions which are functioning. They not only meet the
requirements on a national basis, but also on an international basis and what
may be called as an ever expanding advancement in banking. The Banks now-a-days
are performing so many functions that it would not be a misnomer to suggest
that they have become the custodian of the monetary economies of the
world. When we talk of great scientific
developments and inventions, banking as it stands today is also a wonder of the
world.
Banking
as we see today is the result of evolutionary development during the course of
centuries. It would also be necessary to see how Banking has come to its
present stage. There has been all round development in the world and the
banking today is not what it was in the earlier rudimentary form. To develop
true perception, we need to know as to in what manner Banking today has come to
be what it is and in what manner this transition has taken place.
The
banking system, as it exists today, is the product of a number of centuries and
is not the development of any particular period. In all the countries of the
world. Banking has been in existence in one form or the other. So far as the
present system is concerned, the word, bank is said to be of Germanic
origin, cognate with the French word banque and the Italian word, banca,
both meaning bench. In fact, this word may have derived its meaning from
the practice of Jewish money-changers of Lombardy, a District in North Italy,
who, in the middle ages, used to do business sitting on Benches in the market
place. In case such an interpretation is provided, then it also finds
support from a number of other derivations of the word such as the French word,
Bancjue Route and the Italian word, Banka Rotta, both of which
mean Broken Bench. This practice can be understood if we analyze the situation
when a money-changer failed and his bench was broken as a result of his
failure.
Macleod, however, does not agree with this view
and says, "The Italian money-changers as such were never called Benchieri
in the middle ages". It may be more correct to say that the word bank is
derived from the German word back which means a Joint Stock Fund, which
was Italianized into Banco, when the Germans were me masters of a major
part of Italy.
Professor Ram Chandran Rao has said: "whatever be the origin of the
word bank, it would trace the history of banking in Europe
from the middle ages
When
we come to the Roman age, the State Banks were not functioning but there were
private banks duly regulated by the Government. Aristotle stated that:
"Charging
of interest on money was unnatural and immoral and on this account, banking
could not develop for sometime."
We should also remember that in ancient
times, commercial banking was associated with the business of money-changing.
They also met the financial requirements of the ruling government. Adam
Smith has stated as under:
"The
earliest banks of Italy,
where the name began, were finance companies..... to make loans to and float
loans for the government of cities in which they were formed.... After these
banks had been long established, they began to do what we call banking
business, but at first they never thought of it.
It was
only in the 12th century that the Banks, in the modem sense of the term, were
established in Venice and Geneva, which were doing the business of receiving
deposits and lending money, and were not only money-lenders. In Florence alone, there were about 80 bankers known to the
whole of Europe such as Bardi, Medici, Peruzzi
and others of great repute. The Bank of Venice founded in 1157, was the first
Public Banking Institution. The Bank of Barcelona and the Bank of Geneva were
established in 1401 and 1407 respectively and the Bank of the Venice and the Bank of Geneva continued to
operate until the end of the 18th Century. The private banking houses such as
the famous house of Fuggers and Augsburg enjoyed
more eminence than Peruzzi and Bardi in the 14th Century and the Medici in the
15th Century in Italy.
The bankers of Lombardy settled in the locality which is now known as the
famous Lombard Street
in London and to them belonged the credit of
planting the seed of modem banking in England. Public banks like the
famous Bank of Amsterdam was established in 1609 and these banks helped in the
development of trade and commerce. These banks received heterogeneous metallic
money and credited deposits in their books which were transferable through bank
cheques. Thus, the mercantile payments now began to be settled by means of
payment through cheques.