Banking: Do We Need Banks Today

Banks can be considered the foundation of the financial world. For anyone hoping to be more financially literate, it is crucial to understand banking.

The history of banking is as long as the history of civilization itself. In fact, there is evidence that even before civilization, there were systems similar to banks, or ‘bank-like’ structures. Although it is impossible to shrink that history into a small piece, this article will give you a brief account of how banks came to be and what are their roles in our lives. 


Earliest Banks

The earliest banking systems had only a few functions of banking as we understand it today. They are believed to originate around 8000 BC and were primarily concerned with keeping records of trades that people made. Traces of the earliest ‘proper’ banks can be linked to the shift from hunting and gathering to agriculture when farmers started to emerge. People started to produce more than they need and the need for a place that would act both as a common storage and record-keeping body rose. The most ancient of these places could be found in the form of temples and palaces across Babylonia in Mesopotamia, which lent out seeds and the like to individual farmers and received additional interest in return.


Banks of Medieval Period and After

The medieval period denotes the history of Europe between the fall of Rome in the 5th century CE and the beginning of the Renaissance in the 14th century. Merchant banks characterize this period that again mostly lent outcrops. These banks financed expeditions across silk routes and practiced brokering which makes them closer to current banks. These banks sprung up first in Italy where the concept of bankruptcy also emerged. It came from the phrase ‘banca rotta’ (meaning broken bench) which was when a trade failed to deliver on its promised routes. 

Most of the traditional banking services such as issuing deb and allowing deposits came about between the 17th and 19th centuries. No wonder such proper banks emerged in the UK which was also the birthplace of the Industrial Revolution. 

Goldsmiths of London is believed to be the first bank as we know it today – keeping precious materials of people and charging them for such services; later providing loans. Later, this sort of bank embraced many other functions including providing banknotes, overdrafts, and cheques.


Rothschilds and the 20th Century

The face of banking underwent substantial changes in the 19th century thanks to the Rothschild family. One of such changes was the arrival of international financing or international banking with the Rothschilds lending money to the Bank of England, purchasing stocks, and investing in large global projects and military activities. The richest family in history also created new banks of their own.

After World War II, banks started to loan money to whole countries. Retail banking, which is the traditional banking service offered to individuals, became a fully-fledged and established type of banking. Many currently used banking technologies such as Automated Teller Machines (ATMs), the Society for Worldwide Interbank Financial Telecommunication (SWIFT), and others were developed in this period.


Do We Really Need Banks?

Imagine that you don’t have a bank account, nor a debit or credit card, and no ATM around where you live. Well, banks do not exist only for these purposes today. As we have seen, they are financial institutions serving not only people but also businesses and countries. Banks are the manifestation of the relationships taking place within an increasingly globalized human society.

However, they have been criticized and fallen out of trust after the global financial crisis of 2008. Recent events of a pandemic have shown undisputable relevance and dominance of financial technologies (fintech) offered by non-banking organizations, thus questioning the historically dominant role of banks. That said, when we say banking, we are mostly talking about its functions which have emerged and got refined over thousands of years. At least some of these functions are essential to a society whose very fabric is made of economic relations among others – relations that rely on money for existence. Therefore, from this point of view, it is perhaps safe to say we need services offered by banking systems, but not necessarily the traditional banks in our lives. 

On the other hand, banks can be considered informers of the government. Governments observe and learn about the economy through banks. Additionally, transactions happening through banks are traced and credits are given after the due diligence process. Such functions performed by banks can be valuable in preventing social and economic security problems including anti-money laundering, and financing illegal activities such as drug, weapon, and human trafficking among others. Taking into consideration all these factors, one can conclude that banks do not only manage money on behalf of and for people, but they also act as a database of government and security providers in general.

Banking is an essential part of our lives today. It would be hard to imagine a modern society with all its money affairs and consumerism without banks.



Photo: Prachova Nataliia/Shutterstock


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