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Jumat, 15 Mei 2009

A Brief History of Banking

It was during the heyday of the Babylonian Empire from 1728 - 1686 BC that the Code of Hammurabi, named after the sixth and most successful king of Babylon, was devised and written. Details of the country’s laws and financial regulations were carved on tablets of stone six feet high, including details of how loans, interest and guarantees would operate according to a set of standardised procedures. However, the Code of Hammurabi established some important principles, namely that organised banking cannot exist without the essential quartet of rules, regulations, political stability and a developed economy.


Both Ancient Greeks and later the Romans developed their own domestic banking systems based on the use of a universal currency and credit notes. But as countries’ borders were crossed and travel throughout the globe became more common, a need for international banking arose.

By having such a resolute banking system foreigners outside the empire could also trade with Romans with confidence, knowing that definite rules applied. So, even though the Greeks had successfully operated a credit-based banking system with the Egyptians several centuries earlier, it was the Romans who crucially introduced legislation to regulate financial institutions and practices.

Their successful and respected international banking model existed in the Mediterranean until the fall of the Roman Empire in the sixth century after which Europe entered a dark period of political instability and mistrust. As a result, this meant that banking could not operate in the same formalised way. It wasn’t until almost a millennium later, during the 16th century that westernised banking emerged and with it the false impression that banking itself was an entirely new concept. However, it developed from the same essential needs that drove first the Babylonians, Greeks and finally the Romans to establish their banking rules, regulations and standards and led to the formation of the London Royal Exchange in 1565; generally regarded as the formation of UK banking. It was from those renewed beginnings that standardised systems for deposits, loans and guarantees evolved and eventually were copied throughout the world.

Over the past four centuries westernised banking principles have become firmly established across the globe and although King Hammurabi of ancient Babylon wouldn’t recognise it now, international banking is most firmly rooted in his initial concepts devised almost four thousand years ago.

Although the general perception may be that organised banking is a relatively new phenomenon that has only developed over the last few centuries, the reality is that has been in thriving in one form or another for almost 3,750 years.

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