Principles of banking management

It means one head, one plan for a group of activities having similar objectives. It is related to the functioning of departments, or organization as a whole.

Principles of banking management

History of banking Among many other things, the Code of Hammurabi from BC recorded interest-bearing loans. Banking began with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities and this system is known as a barter system.

This began around BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empirelenders based in temples made loans and added two important innovations: Archaeology from this period in ancient China and India also shows evidence of money lending activity.

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The origins of modern banking can be traced to medieval and early Renaissance Italyto the rich cities in the centre and north like FlorenceLuccaSienaVenice and Genoa. The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe.

Georgewas founded in at GenoaItaly.

Principles of banking management

Merchants started to store their gold with the goldsmiths of Londonwho possessed private vaults, and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held as a bailee ; these receipts could not be assigned, only the original depositor could collect the stored goods.

Gradually the goldsmiths began to lend the money out on behalf of the depositorwhich led to the development of modern banking practices; promissory notes which evolved into banknotes were issued for money deposited as a loan to the goldsmith.

Since the promissory notes were payable on demand, and the advances loans to the goldsmith's customers were repayable over a longer time period, this was an early form of fractional reserve banking.

The promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money backed by the goldsmith's promise to pay, [6] allowing goldsmiths to advance loans with little risk of default. The Bank of England was the first to begin the permanent issue of banknotesin The Rothschilds pioneered international finance on a large scale, financing the purchase of the Suez canal for the British government.

A BC one-third stater electrum coin from Lydiawhere gold and silver coins were used for the first time Etymology[ edit ] The word bank was borrowed in Middle English from Middle French banque, from Old Italian banco, meaning "table", from Old High German banc, bank "bench, counter".

Benches were used as makeshift desks or exchange counters during the Renaissance by Jewish [10] Florentine bankers, who used to make their transactions atop desks covered by green tablecloths. See the relevant country pages under for more information.

In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in relation to negotiable instrumentsincluding chequesand this Act contains a statutory definition of the term banker: Although this definition seems circular, it is actually functional, because it ensures that the legal basis for bank transactions such as cheques does not depend on how the bank is structured or regulated.

The business of banking is in many English common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business. When looking at these definitions it is important to keep in mind that they are defining the business of banking for the purposes of the legislation, and not necessarily in general.


In particular, most of the definitions are from legislation that has the purpose of regulating and supervising banks rather than regulating the actual business of banking.

However, in many cases the statutory definition closely mirrors the common law one. Examples of statutory definitions: This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers in the bank, and collecting cheques deposited to customers' current accounts.

Banks borrow money by accepting funds deposited on current accounts, by accepting term depositsand by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loansand by investing in marketable debt securities and other forms of money lending.Authentication in Internet Banking: A Lesson in Risk Management.

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The business model that banks use to offer products and services to their customers has evolved significantly. To understand bank and other financial institution management fully, we must go beyond the general principles of bank asset and liability management described next and look in more detail at how a financial institution manages its assets.

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Principles of Banking