The modem banking is not the result of an accident rather it is initiated because of man's increasing demands and needs. Following three parties or sectors of society played a vital role for the establishment of Bank.
In the past (12th to 14th century), the merchants were considered as very rich and respectable people due to good repute of dealings in money.
Trust In Merchants:
Because of their strong financial background and fair dealing in money, they were considered as trust worthy people. Therefore, general public started and continued financial transactions with them.
Transfer Of Merchants:
In 14th century, many Italian merchants shifted to England, where they r.tarted the business of lending money on interest basis. Because of their sound financial position, even the king also used to borrow money from them. They have done a lot of services in the field of banking.
Beginning Of Bank Draft:
With the expansion in business, the merchants began to give written acknowledgements to the people, which put them in a position so withdraw their money from the agents or friends of merchants. Now a days the modem shape of that acknowledgement is bank draft.
These were the people who lent their surplus money to needy people on interest basis.
Expansion Of Business:
In the beginning they provided lending facilities from their own resources. But with expansion in business, they. started to borrow money for lending purposes. It means they began to borrow from the people with surplus money and lent this money to needy persons. They borrowed money at low rate of interest and lent it at higher rate. The difference of low and high rate of interest was their profit
Advanced Form Of Lender's Business:
The most important function of modern bank is to accept deposits and to lend money. So modern bank is the advanced fern of moneylenders.
Due to confidence in the integrity and solvency of goldsmiths, The people considered them as honest and trust worthy. They were the people who nurtured the banking system started by merchants.
The goldsmiths had strong iron safe, lockers and boxes for the safely of precious metals. Because of good arrangements of safety, the people began to keep their valuable i.e. gold and silver with them. The goldsmiths were used to issue receipts for the received goods and articles.
Beginning Of Cheque:
After sometime the goldsmith issued written permissions (receipts) in favour of depositors to get their money and other valuables back. These receipts started to pass from hand lo hand in settlement of different transactions with full acceptance. Ii was an olden shape of modem cheque.
Expansion In Business:
When the goldsmiths found that most of money deposited with them lying idle and people were not in the habit of drawing their deposits. On the other hand they were being constantly requested for loan against good securities on interest basis. They thought it profitable to lend and this proved fruitful for the goldsmiths later, instead of charging interest from depositors, they began to give interest on money deposited with them.