Evolution of Banking

 Evolution of Banking -

Seven hundred years ago a bank was established in Venice, which made transactions resembling modern banking. In 1407, another bank was founded in Italy under the name of Banco di San Giorgio which was one of the oldest chartered banks in Europe. 
Sveriges Riksbank (Riksbanken), is the central bank of Sweden and the world's oldest central bank. The Bank of England is the second oldest central bank in the world, and most modern central banks have been based on that model

# Bank of Venice was the first bank to start commercial banking operation in 1157.

  • The Bank of Venice [1157]

Venice is considered the cradle of modern banking. By 1361, many safeguards were in place to ensure the stability of banks. Bankers were banned from engaging in other businesses so they would not be tempted to use deposits to finance their own schemes. Their books and stockpile of coins were available for public inspection. Bank examiners were used and banks had to settle accounts between themselves in coin rather than by check. Despite these precautions, Venice's largest bank failed in 1584. However, out of this failure, a truly sound bank rose from the ashes. The new bank was not allowed to make loans and sustained itself solely from fees. Because this worked so well, that bank became the center of Venetian commerce and its receipts were widely accepted even beyond Italy. By 1619, however, the sins of the past were already forgotten and new banks were formed across Europe making loans on fractional reserves. Throughout the 15th and 16th centuries, European banks arose and failed with the inevitable result that depositors lost their money.


  • The Bank of Amsterdam

The next example of sound banking comes to us from Amsterdam in 1609. Its income came only from fees just like the successful Venetian bank. When the armies of Louis XIV approached in 1672, some worried depositors rushed to the bank to withdraw their money. In reaction, others came in fear their money would not be there. However, once people realized all who wanted their money would be paid, they were no longer worried and left their money in the bank. Eventually, the bank began to lend money it didn't have and it failed in 1819.


  • The Bank of Hamburg [1690]

For over 200 years, the Bank of Hamburg adhered to the principle of 100% reserves. It was so careful and honest, that when Napoleon took possession of the bank in 1813, he found 17,613 more silver marks than were needed to cover liabilities. The French replaced the money with securities, however, and the bank began the practice of fractional reserve banking to survive. It lasted another 55 years before it failed.

The Bank England [1694]

The first paper money in England was issued in the early 1600s as fiat money, so it was not widely used. When Charles II was unable to repay a debt of over a million pounds in 1673, 10,000 depositors lost their savings. The ensuing economic disaster resulted in politicians and bankers making a deal to save the economy. Their eventual solution was the first partnership between government and banking to create a central bank which would be granted a monopoly to issue bank notes as the sole currency of England. The Bank of England, chartered in 1694, would use debt monetization at the direction of Parliament to create money out of nothing and the economy would be "saved," albeit at the expense of the treasure of the people. In 1696, there was a run on the bank and it did not have the money to pay depositors. Parliament intervened exempting the bank from having to honor its contract to pay in gold, beginning a tradition of bail outs that has continued to this day. In 1833, the bank's notes became legal tender, meaning people had to use them to settle debts and pay taxes. While Parliament granted charters to other banks that failed, they have always bailed out the Bank of England by monetizing debt and devaluing the currency. This bank was the example our founders had when they wrote the Constitution, so they could easily point to the dangers of banking in this way.

  • The Rothschild [1744 – 1812]

Mayer Amschel Rothschild (1744 - 1812) once said, "Let me issue and control a nation's money and I care not who writes the laws." Son of a goldsmith, he apprenticed as a banker and quickly worked his way from clerk to junior partner, eventually establishing his own banking business in the 1760s. He also traded in rare coins, garnering the favor of wealthy patrons including William of Hess. His banking skill and connections led to the family handling William's very profitable troop rental business providing Hessian soldiers to many including Britain for the revolution in America. A bank was established for his son Nathan in London and as business grew, each of his sons headed his own branch of the family banking dynasty in Berlin, Vienna, Paris and Naples. The Rothschilds financed everything from South African diamond fortunes to governments and the crown heads of Europe. They financed both sides of many wars, allowing them a monopoly to also smuggle cargo and information across battle lines.

In 1815, England was selling bonds at an incredible rate to fight the war with Napoleon. As the battle of Waterloo approached, England's currency and entire future was at risk pending the outcome. In the early morning hours of June 20, Nathan Rothschild's agent reported the outcome of the battle to him a full 24 hours before Wellington's own courier arrived with the news. The members of the London stock exchange expected Nathan to know the outcome of the battle before anyone else, so when he began selling British bonds, everyone began selling and a panic ensued. When the market was a fraction of its original value, Nathan quickly bought the entire market for pennies on the dollar and in a single day became owner of a dominant portion of England's debt. In a similar move three years later, the Rothschilds gained similar control over the French economy.

The Rothschilds were among the first and remain today some of the most powerful international bankers in the world who use fractional reserve practices and debt monetization through governments to increase their own fortunes and power at the expense of the people. They were instrumental by proxy, in the creation of the Federal Reserve in 1913.


  • The 1st Central Bank - The Bank of North America, 1781-1785

The first central bank of the United States was chartered even before the Constitution was adopted. Robert Morris, a wealthy merchant and Congressman and eventual signer of the Declaration of Independence was made Superintendent of Finance to organize the bank. It was modeled after the Bank of England, but did not establish legal tender. It was to be capitalized with $400,000, but only about $70,000 was raised from private sources. The bank was further capitalized with gold loaned by France to America and other capital and opened in 1782. The bank handled the account for Congress and quickly loaned them $1,200,000. Amid charges of fictitious credit, foreign influence and unfair competition, the bank's charter was revoked in 1785.


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