Banking,history of banking,purpose of banking
Banking,history of banking,purpose of banking
The History of Banking, Part II, 18441959:
The period from the passage of the Bank Charter Act of 1844 to the Report of the Radcliffe Committee of the Workings of the Monetary System in 1959 is one of the most important in the history of the British and international economy. The role of banks and banking systems in facilitating and shaping the pattern of economic growth has been much explored in an attempt to understand differing levels of economic success in industrialising and mature economies. This collection brings together many of the most important contributions to the understanding of this role. Some of these works are familiar: classic contributions by authors such as Richard Sayers, Walter Bagehot, John Maynard Keynes and Vera Smith are supplemented by many pamphlets, articles and papers, scholarly and polemical, written by those with a particular position to defend or view to publicise.The many government inquiries into the banking and monetary systems and overseas in this period can be seen as attempts to foster understanding, as well as other policy insights for a rapidly changing world.
The intensity of many of the controversies explored is such that they have not yet been resolved. The appropriate levels of liquidity in lending policies, the tension between banks duty to depositors and their responsibility to foster economic growth, the extent of Central Bank involvement in regulation of the banking system and the economy, the impact of bank failure on the business environment, and the influence of the international economy on domestic banking stability all generated fervent debate as the British economy first experienced rapid growth in the nineteenth century and was then overtaken by other nations exhibiting alternative institutional configurations.
Purpose of Banking: In many case you hadn't noticed, the foxes are still guarding the banking henhouse. The onlychange: President Obama is reducing how many hens the foxes can kill while on guard duty.The foxes, of course, are the financial wizards whose leadership almost entirely wipedout the capital of the banking system.The old system relied on trusting people who lied and cheated. They are still running theshow. They will lie and cheat again. We will be called upon to pay the bill, again. We need a new financial system. We need limited purpose banking. It should betransparent, trustworthy and unsinkable. The key is to limit banks to their legitimate purpose.Not gambling, but financial intermediation, connecting savers to investors and lenders toborrowers.Is this possible? Yes, it already exists in the only part of old system still above water the mutual fund industry. Mutual fund companies like Fidelity, Vanguard, and TIAA-CREFstuck to their knitting.
Benefits and Disadvantages of Internet Banking: If you fit in to the generation that is habitual of sitting in front of computers and doing all your bank transactions, shopping, booking purchasing of goods with the help of internet. The internet facility assists you in doing all these activities without going outside and from one place only. Banking is one of the most important advantages of internet. For people who are older the perception of not interacting with human inside the bank will be bitter pill to eat. They still wonder about thepositive and negative aspects of using internet banking.Nervous people recognize the benefits of Internet and hearing many things about Internet banking but they arestill paying their bills by mail and deposit checks at their branch.
Starting of online banking:When the internet started to become incredibly accepted and computer commences turn out to beprogressively sophisticated, many business tycoons started to shift their attention to the trend and recognized their online presence. This similar movement also started to redesign the banking trade.In earlier period, banks use computers to make routine transactions. Now there is hardly any paperwork at all since everything is done online with the help of banks networking system.For banks, the Internet transactions played very important role some customers are not able to visit branch personally. If such facility is available with bank then they can increase there customer base.Today the big banks have sites that provide fully secure and fully functioning online banking services that give their clientele ultimate convenience.
The Evolution Of Banking:With the exception of the extremely wealthy, very few people buy their homes in all-cash transactions. Most of us need amortgage or some form ofcredit to makesuch a largepurchase. In fact, many people use credit in the form ofcredit cards to pay for everyday items. The world as we know it wouldn't run smoothly without credit and banks to issue it. In this article we'll, explore the birth of these two now-flourishingindustries
Divine Deposits:Banks have been around since the first currencies were minted - perhaps even before in some form or another. Currency, particularly the use of coins, grew out of taxation. In the early days of ancient empire, a tax of on healthy pig per year might be reasonable, but as empires expanded, this type of payment became less desirable. Additionally,empires began to need away to pay for foreign goods and services with something that could be exchanged more easily. Coins of varying sizes and metals served in the place of fragile, impermanent paper bills.
Flipping a Coin:These coins, however, needed to be kept in a safe place.Because ancient homes didn't have the benefit of a steel safe, most wealthy people held accounts at their temples. Numerous people (like priests or temple workers), whom one hoped were both devout and honest, always occupied the temples, adding a sense of security. There are records fromGreece,Rome, Egypt and Ancient Babylon that suggest temples loaned money out in addition to keeping it safe. The fact that most temples were also the financial centers of their cities is the major reason that they were ransacked during wars.
Primus Bank, The First Bank:The Romans, great builders and administrators in their own right, took banking out of the temples and formalized it within distinct buildings. During this time, moneylenders still profited, asloan sharks do today, but most legitimate commerce and almost all governmental spending involved the use of an institutional bank. Julius Caesar, in one of the edicts changing Roman law after his takeover, gives the first example of allowing bankers to confiscate land in lieu of loan payments. This was a monumental shift of power in the relationship ofcreditor anddebtor, as landed noblemen were untouchable through most of history, passing debts off todescendants until either the creditor's or debtor's lineage died out.
Visa Royal:Eventually, the various monarchs that reigned overEuropenoted the strengths of banking institutions. As banks existed by the grace, and occasionally explicit charters and contracts, of the ruling sovereign, the royal powers began to take loans to make up for hard times at the royal treasury - often on the king's terms. This easy finance led kings into unnecessary extravagances, costly wars and an arms race with neighboring kingdoms that lead tocrushing debt. In 1557, Phillip II ofSpainmanaged to burden his kingdom with so much debt as the result of several pointless wars that he caused the world's first national bankruptcy -as well as the second, third and fourth, in rapid succession.
Adam Smith and Modern Banking:Banking was already well established in theBritish Empirewhen Adam Smith came along in 1776 with his "invisible hand" theory. Empowered by his views of a self-regulated economy, moneylenders and bankers managed to limit the state's involvement in the banking sector and the economy as a whole. This free marketcapitalism and competitive banking found fertile ground in the New World where the United States ofAmericawas getting ready to emerge.
In the beginning, Smith's ideas did not benefit the American banking industry. The average life for an American bank was five years, after which most bank notes from the defaulted banks became worthless. These state-chartered banks could, after all, only issue bank notes against gold and silver coins they had in reserve.
Alexander Hamilton, the secretary of theTreasury, established a national bank that would accept member bank notes at par, thus floating banks through difficult times. This national bank, after a few stops, starts, cancellations and resurrections, created a uniform national currency and set up a system by which national banks backed their notes by purchasing Treasury securities - thus creating a liquid market. Through the imposition of taxes on the relatively lawless state banks, the national banks pushed out the competition.
Merchant Banks:Because the national banking system was so sporadic, most of the economic duties that would have been handled by it, in addition to regular banking business like loans and corporate finance, fell into the hands of largemerchant banks. During this period of unrest that lasted until the 1920s, these merchant banks parlayed their international connections into both political and financial power. These banks included Goldman and Sachs, Kuhn, Loeb, and J.P. Morgan and Company. Originally, they relied heavily on commissions fromforeign bond sales from Europe with a small backflow of American bonds trading inEurope. This allowed them to build up their capital.
At that time, a bank was under no legal obligation to disclose itscapital reserve amounts - an indication of its ability to survive large, above-average loan losses. This mysterious practice meant that a bank's reputation and history mattered more than anything. While upstart banks came and went, these family-held merchant banks had long histories of successful transactions.
Morgan and Monopoly:J.P. Morgan and Company emerged at the head of the merchant banks during the late 1800s. It was connected directly to London, then the financial center of the world, and had considerable political clout in the United States. Morgan and Co. created U.S. Steel, AT&T and International Harvester, as well asduopolies and near-monopolies in the railroad and shipping industries through the revolutionary use oftrusts and a disdain for the ShermanAnti-Trust Act.Although the dawn of the 1900s had well-established merchant banks, it was difficult for the average American to get loans from them. These banks didn't advertise and they rarely extended credit to the"common" people. Raci sm was also widespread and,even though the Jewish and Anglo-American bankers had to work together on large issues, their customers were split along clear class and race lines. These banks left consumer loans to the lesser banks that were still failing at an alarming rate.
The Panic of 1907:The collapse in shares of a copper trust set off a panic that had people rushing to pull their money out of banks and investments. This caused shares to plummet. Without theFederal Reserve Bank to take action to calm people down, the task fell to J.P. Morgan to stop the panic by using his considerable clout to gather all the major players onWall Street to maneuver the credit and capital they controlled, just as the Fed would do today.
The End of an Era:Ironically, this show of supreme power in saving theU.S.economy ensured that no private banker would ever again wield that power. The fact that it took J.P. Morgan, a banker who was disliked by much of America for being one of therobber barons with Carnegie and Rockefeller, to do the job prompted the government to form the Federal Reserve Bank, commonly referred to today as the Fed, in 1913. Although the merchant banks influenced the structure of the Fed, they were also pushed into the background by it.
Even with the establishment of the Federal Reserve, financial power, and residual political power, was concentrated in Wall Street. When the First World War broke out,Americabecame a global lender and replacedLondonas the center of the financial world by the end of the war. Unfortunately, a Republican administration put some unconventional handcuffs on the banking sector.
World War II "Saves" the Day:World World IImay havesaved the banking industry from complete destruction. WWII, and the industriousness it generated, lifted the American and world economy back out of the downward spiral.or the banks and the Federal Reserve, the war required financial maneuvers using billions of dollars. This massive financing operation created companies with huge credit needs that in turn spurred banks into mergers to meet the new needs. These huge banks spanned global markets. More importantly, domestic banking in the United States had finally settled to the point where, with the advent of deposit insurance and mortgages, an individual would have reasonable access to credit.
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