HISTORY OF BANKING

Date: 2015-10-07; view: 490.

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Задание I

Unit 1

Banks and Banking

PART I

barter, proportion, safe, method, banker, reserve, monopoly, system, rudimentary, technical, services

Banking started when men began to trade. The first method of trade was barter – one article was exchanged for another. Then Greek travelers invented the letter of credit, as they didn't want to carry large sums of money with them on their sea journeys. The Italian merchants, the Lombards, introduced the bill of exchange, and set up small lending houses in many countries.

But banking as we know it today began in the 16^th century in England with the goldsmiths. These craftsmen possessed strong rooms in which they kept their own gold, and they soon started looking after other people's valuables too. They found from experience that their depositors withdrew only a small proportion of the total sum of gold in their safes at any one time, and so they began to lend the bulk of their deposits to others. When a goldsmith received gold, he issued a signed receipt. People started accepting these receipts instead of gold itself, and so they circulated from hand to hand. The exchange of receipts was obviously a more convenient method of paying debts than exchanging large quantities of gold. This method of payment gradually became generally accepted.

The business of banking grew rapidly. Thousands of people gave up their original trades in order to become bankers. They earned their living by lending money to others, and made profit by charging interest on the loans.

The skilful banker steered a careful course between greater profit on the one hand, and ruin on the other. His liability for the debts of his business was unlimited, so if he had inadequate cash reserves when there was a run on the bank, he was unable to redeem his promises. This meant that he always kept a certain cash reserve which varied according to the size of his business and the confidence in the banker. Each banker issued his own notes.

This system of private bankers lasted until the middle of the 19^th century. The Bank Charter Act of 1844 gave the Bank of England the monopoly of the note issue. However, banks that existed at that time retained the right to issue their own notes, but lost that right if they amalgamated. The cheque system was a direct development of the Act.

The development of joint-stock banking, which also took place in the 19^th century, represented another great change in banking. These banks had limited liability for their shareholders, and were often amalgamations of several of the old banks. This also led to the branch system, which enabled banks to keep a minimum cash reserve with the possibility of transferring money from branch to branch at a moment's notice.

Banks today are very different from the rudimentary lending houses of 400 years ago. This text discusses the history of banking only in England. However, development of banking from its primitive beginnings to its present technical perfection and wide range of services is similar in most European countries.