How Banks Work Documentary The very first banks were probably the religious temples of the ancient world. In them were stored gold in the form of easy to carry compressed plates. Their owners justly felt that temples were the safest places to store their gold as they were constantly attended, well built and were sacred, thus deterring would-be thieves. There are extant records of loans from the 18th Century BC in Babylon that were made by temple priests to merchants. Ancient Greece holds further evidence of banking. Greek temples as well as private and civic entities conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. Interestingly, there is evidence too of credit, whereby in return for a payment from a client, a Money Lender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey. Ancient Rome perfected the administrative aspect of banking and saw greater regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive. The ascent of Christianity in Rome and its influence restricted banking, as the charging of interest and usury were seen as immoral. Jewish entrepreneurs, free of Christian taboos about money, established themselves in the provision of financial services increasingly demanded by the expansion of European trade and commerce. The modern Western economic and financial heritage begins as early as the establishment of Jonathan's Coffee-House, which later became the London Stock Exchange. This became a base for stock traders expelled from the Royal Exchange. In 1698 John Casting, began publishing a twice weekly newsletter of share and commodity prices, which he sold at Jonathan's. One of the oldest London Banking institutions still operating today is Barclay Bank, which was founded by John Frame and Thomas Gould in 1690. The bank was renamed to Barclay by Frame's son-in-law, James Barclay, in 1736. With the coming of democratic capitalism, around the time of Adam Smith (1776) there was a massive growth in the banking industry. Within the new system of ownership and investment, moneyholders were able to reduce the State's intervention in economic affairs, remove barriers to competition, and, in general, allow anyone willing to work hard enough-and who also has access to capital-to become a capitalist. It wasn't until over 100 years after Adam Smith, however, that companies began to apply his policies in large scale and shift the financial power from England to America. By the early 1900s New York was beginning to emerge as the world's leading financial center. Companies and individuals acquired large investments in (other) companies in the US and Europe, resulting in the first true market integration. This comparatively high level of market integration proved especially beneficial when World War I came-both sides in the conflict sought funds from the United States, by issuing new securities and selling existing holdings, though the Allied Powers raised by far the larger amounts. Being a lender to the world resulted in the largest growth of a financial economy to that point. Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were on the whole, bullish. Nevertheless, in recent years, the dominance of U.S. financial markets has been disappearing and there has been an increasing interest in foreign stocks. The extraordinary growth of foreign financial markets results from both large increases in the pool of savings in foreign countries, such as Japan, and, especially, the deregulation of foreign financial markets, which has enabled them to expand their activities. Thus, corporations and bank have started seeking investment opportunity abroad. Such growing internationalization and opportunity in financial services has entirely changed the competitive landscape, as now many banks have demonstrated a preference for the "universal banking" model so prevalent in Europe. Universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a "one-stop" supplier of both retail and wholesale financial services.

• published: 09 Feb 2016
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