How did Banks Start?

            The word ‘bank’ is derived from the Italian word ‘Banco’, which means bench. In the middle ages, Italians used to conduct their commercial transactions while sitting on the bench. Later, this very word ‘banco’ underwent changes and became ‘bank’. Now, all the countries of the world have banking systems. Do you know how the banks started?

Sample of Bank cheque

            In olden days, Jews did money lending, and subsequently the goldsmiths, too, started lending money to the traders. Merchants, in fact, paid the goldsmiths to look after their surplus cash. These goldsmiths gave receipts like a bank note to the merchants for the cash they deposited with them. The goldsmiths would in turn lend a part of that money to others and earn interest on it. They could thus make extra money. A part of the money thus earned, they gave to the merchants as an incentive for depositing the money with them. This is how banking started.

            Merchants also wrote letters to the goldsmiths to pay other merchants from the money they deposited with them. This amounted to issue of cheques. The modern banking system started in Venice in 1587, and in the same year the ‘Banco di Rialto’ was established. People could deposit money in this bank and could withdraw when they needed it. In 1619, ‘Banco di Giro’ took over the management of this bank. People could deposit even their gold and silver items in this bank, for which the bank issued receipts. These receipts were used as currency notes.

            The first bank in the USA was set up in Philadelphia in the year 1782. In England, the first bank was started in the year 1825. In India, the first bank was the ‘Presidency Bank of Bombay’, which was established in 1804. However, the first full fledged India bank was the Punjab National Bank, which was started in 1894. The government established the Reserve Bank of the India in April 1935. This bank issues all the currency notes and coins for circulation in the country. To day, a large number of banks have been established all over the world.

            Initially, banks had only two functions, namely to receive money and to give loans on interest. Nowadays, banks serve many other purposes such as giving credit cards and foreign currency to people going abroad. Banks also provide us the facility of lockers to keep our jeweler there.