The mankind give debt and take for centuries.5000 years ago,at the age of which civilizations has not started yet,in Mesopotamia(today's Iraq),there is evidence from people that such relationships are being established.However, the modern banking system emerged in Italy in 14th century.The "bank" means come from the word 'banca' which means Italian 'bench' or 'queue'.It called as "Bank" because of banker who sit on bench to carry on the job connections. Italian peninsula in 14th century,was made up of city states that benefited from the moral and material support strength of the pope in Rome.The geographic location of peninsula,was very appropriate to trade between with the developing European Nations, Asia and Africa.In very short time,the wealth began to accumulate especially in Venice and Florence
.There are institutions that finance and insure maritime voyages,was began to formation.Florence was focused on production and trade with North Europe.In this way,merchants and financiers in here met at Banco Medici(Medici Bank).
Florence, Peruzzi and Bardi as well as the families and people of the valuable assets of the security of the lenders against the lenders to the foreign countries of the money doing business,who hosted various financial services as well as local bankers who bought and sold this money to local businessmen.The bank established by Medici in Giovanni di Bicci in 1397 was different.
The Medici Bank financed the trade of long-haul goods such as wool.The Medici Bank was different from the other banks in three issues.First, it was so big. During he brightest of Cosima's son, the son of the founder, there were branch offices in 11 cities, including London, Brussels and Geneva.Secondly, the responsibility for the management of the bank's network was distributed. The branches were managed by the employees. The Medici family in Florence, who kept the name of the family, who oversaw the bank bank, took a large portion of the profits and was a symbol of the bank's solid reputation,Third, the branches collect deposits in large amounts from wealthy customers, thereby increasing the amount of loans they have given as small start-up capital, increasing the bank's profit.
Banking Economy
These qualities that make the Medici's success correspond to three economic concepts that are highly connected to today's banking.The first is "scale economies." It is expensive for a person to make a single statutory loan contract, but a bank can prepare 1000 contracts like this one by paying only a fraction of the cost calculated by the cost per contract.Money exchange (cash investment) is more suitable in scale economies.The second is "risk distribution." The Medicies have reduced their problematic credit risk by distributing debts to different geographies.Moreover, minor partners are smarter in giving credit for their share of profits and losses, so that the medicists' commercial banks, which emerged at the end of the 14th century, have undertaken to arrange deposits and loans and to convert foreign currency into local currency. The circulation of the banned and forbidden money is also under surveillance.Moreover, the little partners are smarter in giving credit for the loss of profits from the profits, so they get some of the Medici's riskier on top of them.The merchants wanted to deposit their gains into the bank or borrow money from the bank. For example, a trader could ask for a safe place to hide their gold and get it back immediately when needed.Another was able to borrow money. It was more risky for the bank and it tied the money for a longer time. Finally, the bank began to stand at a "short-term borrowing and long-term debt" balance.This has come to everyone's mind: the bank that folds its deposits into debt money in order to fold its profits and debts and natural profits and to provide a high return on investment of property owners.However;; these activities make the banks weak and vulnerable at the same time: if a large number of depositors wish to draw money from the bank at the same time ("bank attack"), the bank is also in a difficult situation if it pays a large part of the money in return for a long term repayment. This risk is calculated, the advantage of the system is that it can connect depositors and borrowers in a useful way.
Commercial banks emerged at the end of the 14th century, dealing with deposits and credit arrangements, and the conversion of foreign currency into local currency. They also supervised the circulation of banned and prohibited money.
In the 14th century Europe, it was a very risky job to finance distance trade. It was both time and distance, which created the so-called "basic problem of trade": the risk of someone being involved with loss of property or money after a business deal was made.To solve this problem, bills of exchange have been invented. A piece of paper in which the buyer is committed to pay a certain amount of money for these goods when they arrive.The seller of the merchandise could sell it to someone else immediately to get cash.The Italian trade banks were specialized in the administration of these bonds in a very short time and formed an international money market.
The bank bought the foreign exchange and assumed the buyer's non-payment risk.For this reason it was important to know who would pay for the bank.In order to lend, in general, it is necessary to equip the whole financial world with talent and special knowledge because lack of information can cause serious problems.The credit customers with the lowest repayment probability were the ones who wanted the loan themselves.They usually can not pay back after they receive the credit.One of the most important functions of a bank is to act smartly when giving credit and to prevent "spiritual damage" that will arise when the borrower does not pay for the repayment reflex of the borrower.
Geographical Clustering
Banks often concentrate, or cluster, in the same zone to maximize their knowledge and skills.For this reason, financial centers are formed in big cities. Economists call this "network externality".This theory suggests that the benefits of goods and services increase with the size of the goods and services that use them, and with the formation of the clusters, all the banks also benefit from this increased knowledge and skill.Florence had one of these clusters. The diary was in London with specialists in jewelery and transport.
In the early 1800s in north, the remote province of the inner part of the country, Shanxi, became the financial center of China. Online clustering methods have emerged through the internet.Due to the convenience of specialization, many types of banks exist today. Some collect deposits, some give mortgages or car loans. The new identity that banks earn brings some information problems as well.For example, cooperative societies and cooperative banks, in which their customers own shares, emerged in the 19th century when social change took place to increase trust between banks and customers.Because their members can control each other and the managers have local knowledge, such occurrences could provide long-term loans that customers need.In some countries such as Germany, such banks made a lot of premiums. Dutch Rabobank and Bangladesh's "microfinance" bank Grameen Bank, which gives a lot of loans in small amounts, is a good example of a cooperative bank model.However, clustering can lead to risky competition and mass psychology. It is important for banks to be reputable because they have fund-conversion functions; the credits they give are riskier than the deposits they collect, the cash becomes later and more difficult.
The bad news is the panic.The bankruptcy of a bank creates serious problems for other banks, the state and society. Just as in 1931, following the bankruptcy of Creditanstalt Bank in Austria, people were attracted to the German Mark, the British sterling and then the US dollar, as the deposit holders in the US withdrew their money from the banks and caused the Great Depression.
As a result, banking activities have to be regulated. In many countries, strict legislation is being implemented in many respects, from who can open banks to what information they can keep records and what kinds of activities banks can have.
Finance in General
Banking is a large part of the financial world, in fact only a part of it.Finance is a collection of activities that connect the needy with more money and those who need more than the money in hand, and conclude this relationship with productivity.Stock exchanges directly connect these needs with stocks (documents that represent a certain portion of the capital, documents that grant ownership benefits),
bonds(debt that can be traded) or other instruments.Stock exchanges are physical markets such as the New York Stock Exchange, or regulated markets where transactions are made through computers, such as telephone and international bond markets.This clustering created by trading operations makes long-term investments more liquid because they can be easily sold and converted into cash.Savings can also be pooled to reduce transaction costs and minimize risk.Here are mutual funds, pension funds and insurance companies.
