Deposits to regulations: The long history of banking

Banking is a mainstay of modern civilisation, but its origins stretch back over four recorded millennia and perhaps even further. 

From simple deposits to concepts of interest, the creditor-debtor relationship, letters of credit, institutional independence, and the ongoing conversation of regulation, we track some key developments in the history of banking.

c.2000 BC

Babylonia gets the ball rolling on interest

Although the concept of depositing wealth is likely to be even older, the palaces and temples in the Mesopotamian state of Babylonia are among the first to record a key innovation: interest.

Those wishing to store their gold were required to pay 1.6% interest of its value to the institution.

c.49 BC

Julius Caesar changes the creditor-debtor relationship

The Romans brought banking out of the temples and made it a distinct sector. During Julius Caesar’s five year reign as dictator, he granted creditors the power to confiscate land from debtors who could not pay with money.

This new dynamic consolidated the power of banking institutions for generations.

c.14th century

Italian banks set a new standard

Banking during the Renaissance era took on a new level of sophistication. 

Hubs in Venice and Florence developed innovative credit products that enabled merchants to travel long distances without fear of financial ruin from their stores of cash being stolen. These were analogous to modern cheques. Florentine banks later also created treasury bonds.

18th and 19th centuries

The template for modern banking emerges

Adam Smith conceptualised a model of banking that was independent of state oversight and self-regulated. Alexander Hamilton later developed this idea into the creation of a national bank and uniform currency in the US.

This created stability for a sector that had become notoriously parochial and ephemeral; local banks generally did not survive longer than five years. 

20th and 21st centuries

Retail banking grapples with regulation

By now, retail banks offered customers three primary products: credit, deposit, and wealth management.

Lack of regulation in banking precipitated both the 1929 Great Depression and the 2008 financial crisis. The conversation regarding what banks can and can’t do with depositor funds continues to this day.