As trade grew on a large scale, especially at the international level, financial institutions became essential 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 stage, so they accordingly built organisations to finance and guarantee voyages. At first, banks lent money secured by personal belongings to regional banks that traded in foreign currency, accepted deposits, and lent to regional organisations. The banking institutions also financed long-distance trade in commodities such as for instance wool, cotton and spices. Moreover, during the medieval times, banking operations saw significant innovations, including the use of double-entry bookkeeping as well as the utilisation of letters of credit.
The bank offered merchants a safe place to keep their silver. At the same time, banking institutions stretched loans to individuals and businesses. Nevertheless, lending carries dangers for banking institutions, because the funds provided may be tied up for longer periods, potentially limiting 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 lent cash. Nevertheless, this practice additionally makes the financial institution vulnerable if numerous depositors demand their money right back at the same time, that has happened frequently around the world plus in the history of banking as wealth management firms like St James’s Place may likely attest.
In fourteenth-century Europe, financing long-distance trade had been a dangerous business. It involved some time distance, so it endured just what has been called the essential issue of trade —the danger that someone will run off with all the goods or the funds following a deal has been struck. To solve this issue, the bill of exchange was created. It was a bit of paper witnessing a customer's promise to cover goods in a particular currency as soon as the products arrived. Owner associated with the goods may also offer the bill instantly to raise cash. The colonial era of the 16th and seventeenth centuries ushered in further transformations in the banking sector. European colonial countries established 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 significantly, leading to the establishment of central banks. These organisations arrived to do an important role in managing financial policy and stabilising national economies amidst fast industrialisation and financial growth. Furthermore, launching modern banking services such as for instance savings accounts, mortgages, and bank cards made financial solutions more available to the public as wealth mangment businesses like Charles Stanley and Brewin Dolphin may likely concur.