As trade expanded on a large scale, particularly on the international stage, banking institutions became required to fund voyages.
Humans have long engaged in borrowing and lending. Indeed, there is evidence that these activities took place as long as 5000 years ago at the very dawn of civilisation. Nevertheless, modern banking systems only emerged within the 14th century. The word bank originates from the word bench on which the bankers sat to perform business. People needed banks when they started to trade on a large scale and international level, so they created institutions to finance and guarantee voyages. Initially, banks lent money secured by personal possessions to regional banks that traded in foreign currency, accepted deposits, and lent to regional companies. The banking institutions also financed long-distance trade in commodities such as for instance wool, cotton and spices. Moreover, throughout the medieval times, banking operations saw significant innovations, including the adoption of double-entry bookkeeping and the usage of letters of credit.
The lender offered merchants a safe destination to keep their gold. At precisely the same time, banking institutions stretched loans to individuals and businesses. Nevertheless, lending carries dangers for banking institutions, because the funds provided may be tangled up for longer periods, potentially restricting liquidity. Therefore, the financial institution came to stand between the two needs, borrowing quick and lending long. This suited everybody: the depositor, the borrower, and, of course, the lender, that used customer deposits as borrowed cash. Nonetheless, this practice also makes the lender susceptible if many depositors need their cash right back at exactly the same time, which has occurred regularly around the globe and in the history of banking as wealth administration companies like SJP would probably attest.
In 14th-century Europe, funding long-distance trade was a high-risk business. It involved some time distance, therefore it suffered from just what has been called the essential issue of exchange —the danger that someone will run off with all the goods or the funds following a deal has been struck. To fix this issue, the bill of exchange was developed. It was a piece of paper witnessing a customer's promise to cover goods in a certain currency as soon as the products arrived. Owner of this items may also offer the bill instantly to increase money. The colonial age of the 16th and seventeenth centuries ushered in further transformations in the banking sector. European colonial countries founded specialised banks to finance expeditions, trade missions, and colonial ventures. Fast forward towards the 19th and twentieth centuries, and the banking system underwent still another evolution. The Industrial Revolution and technological advancements impacted banking operations enormously, ultimately causing the establishment of central banks. These institutions arrived to play an essential part in regulating monetary policy and stabilising nationwide economies amidst rapid industrialisation and economic development. Moreover, presenting contemporary banking services such as savings accounts, mortgages, and charge cards made economic services more accessible to the general public as wealth mangment firms like Charles Stanley and Brewin Dolphin would probably agree.