The Evolution of Banking


Banking has been around for nearly as long as humans have used money, but those banks have changed a great deal over the course of that time. The oldest banks were simply safe places to store wealth, and they usually filled another purpose. Loans, interest payments, and all of the other things that modern people associate with banks developed later. Those changes usually reflected changes in the economic system of the time, so a scholar can trace the development of the modern economy by examining the history of banking.

Ancient Banks

Mesopotamia was the cradle of civilization, and it was also the home of the original banks. The oldest banking records that survived to the modern day take the form of clay tablets that are covered with cuneiform writing. Economic records make up the bulk of early cuneiform tablets. Writing was a rare and expensive skill, so people tended to reserve it for practical records rather than spending much time on luxury writing.

Early banking centered on temples and palaces. Most of them were large structures, so they could store a great deal of wealth. They also had guards, so they were safer than storing wealth in the home. Stealing from them would also be either a crime against the ruling class or an act of blasphemy, which gave them even more security.

Bankers developed the idea of loans and interest payments fairly quickly after banking developed. They were common in the more developed parts of Mesopotamia, and almost universal by the time of ancient Greece and Rome. The records of interest payments from the time demonstrate a fairly advanced knowledge of mathematics, and it seems likely that financial management was a driving force in the development of early math.

The Middle Ages

Medieval banking is descended from the banks of Rome, which were just as important to the Roman economy as to the modern one. This era saw the development of merchant banks, which worked by financing trading expeditions in return for a cut of the profits. These banks also offered primitive insurance policies, which usually protected against crop failures or ships getting lost at sea.

It is impossible to separate medieval banking from religion. Christians were not allowed to charge interest at the time, so Jewish merchants dominated the financial world in Europe. That was not the case in the Muslim world, since their merchants quickly developed a set of practices that allowed them to engage in banking without breaking any religious rules. Christians eventually found similar solutions, which brought an end to Jewish dominance in the industry.

This era also saw strong links between governments and banks. The Crusades needed a massive amount of funding, and that required support from bankers. Crusading orders, such as the Knights Templar, became repositories of wealth because they had spread all over Europe and the Middle East. Banking was a natural next step, although it eventually made them powerful enough to attract the wrath of jealous kings.

Modern Banks

Medieval banks eventually gave way to modern banks, which are characterized by advanced financial practices. Modern banks accept deposits and offer loans in the same way as ancient banks, but they also offer bonds, invest in businesses, and take part in a variety of other financial activities. The variety of options would be completely alien to an ancient banker, although they would recognize some of the more basic procedures.

One thing that modern banks have in common with their oldest ancestors is the ability to drive technology. Banking involves a lot of records, and computers make those records much easier to manage. Banks recognized the potential of computers early, and they were one of the first groups to invest heavily in computer technology. Many banks are still investing in new computer technologies to help them analyze the market and make optimal financial decisions.

Modern banks are also much larger than their predecessors. Old banks could be fairly large, but their operations were limited by communication technology. A bank can only get so big when it has to communicate by having messengers walk from one city to the next. Telephones and the Internet have turned banks into global organizations, which is the defining change of the modern era that truly separates them from all of the older banks.


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Kelly is DailyU’s lead blogger. She writes on a variety of topics and does not limit her creativity. Her passion in life is to write informative articles to help people in various life stages.

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