The word “bank” is originated from the Italian word “Banco” a bench which means the early bankers, the Jews in Lombardy, transact their business i.e. lending and exchanging of money at benches in the market place. Some person also traces the origin of bank to the French word “Banque”.
According to the history of banking, it is found that the term bank was first used in Medieval Italy. It is said that due to the war of 1171, Italy had to suffer huge economic crisis so the government decided to get forced loans from public promising to pay them an annual interest rate of 5%. This type of public loan was known as “Monte” which means joint fund.
Banking concept existed even in the ancient periods when merchants, goldsmiths and moneylenders used to perform the work of banking in every country. They were the ancient bankers. Merchants were the oldest ancestors of banking system, trading in commodities than money. They need to remit money from one place to another.
Therefore, the merchants issued “hundis” meaning letter of transfer to remit funds. They used to exchange the gold, silver coins and deposit the valuable ornaments or goods made of gold, silver and gems. The merchants were so popular and creditworthy that the letters or receipt issued by them were treated as good as money.
Goldsmiths were the second ancestors of the modern banks. The goldsmiths used to give receipts, known as Goldsmith’s Note. It was made payable to bearer and on demand which transferred the said receipt into the position of a bank note. It gained circulation and currency in due course of time. Thus, goldsmiths became the pioneer of the modern bank’s note and the ancestor of the modern banking institution.
The third ancestors were moneylenders. Moneylenders used to give loan to the needy public out of their own treasury, by charging interest and used to keep some money in the reserve as safeguard. Later on, savers started depositing their savings/deposits with the moneylender.
