Apart from all these, banks also engage in other commercial, economic, and financial activities. One of the most widespread tertiary sectors in the world is the world of banks and banking.
How Did the Word "Bank" Originate?
The word "bank" is based on the Middle French "banque" meaning "table" and the old Italian "banca". The concept of bank, which was later adopted into Middle English, also means "bank, counter" in Old High German.
In banks, lending activities can be carried out directly by the bank or indirectly through the intermediation of capital markets. Banks are generally subject to a minimum capital requirement, which is an international capital and financial standard. This minimum capital requirement is based on the Basel Accords. Banks play an important role in the financial organization and economy of countries and governments.
Banks and bank-derived financial institutions conduct and regulate capital, Money, and credit transactions. A universal banking organization allocates credit to individuals or institutions. At the same time, banks maintain and control deposit accounts. All kinds of transactions and practices related to capital, credit, and money are carried out through banks. For instance, a credit institution in Germany is defined as an organization where banking activities are carried out in accordance with the law and credit laws.
What Are the Activities and Services Undertaken by Banks?
Banks and banking systems carry out some activities today. Some of these are as follows:
- Printing money
- Personal banking services
- Ethical banking
- Full reserve banking
- Fractional reserve banking
- Deposit banking
- Corporate banking services
- Investment banking
- Private banking
- Transaction banking
- Retail Banking
- Wholesale banking
- Exchange transactions
- Stocks and shares
- Insurance and insurance activities
- Consumer finance
- Trade finance
- Investment transactions
- Capital management
- Telephone banking
- Video banking
- Digital banking
- Internet banking
- SMS banking
- Mobile banking
According to available information, the oldest retail bank is Banca Monte dei Paschi di Siena. Banca Monte dei Paschi di Siena was founded in 1472. The oldest known commercial bank is Berenberg Bank, founded in 1590.
The History of Bank and Banking
Banks are institutions and organizations that emerged in the Middle Ages to protect the valuables of pilgrims during their travels to the Vatican churches and holy lands.
There are many different opinions about the beginning of banking. One of these views is that when people traveled to distant places, they entrusted their money and precious metals to church priests whom they considered to be reliable. It is stated that in some periods, these money collected after this situation was lent or borrowed to those in need through priests and priests, and that banking developed in this way. The fact that a merchant going to a distant city for trade purposes would receive a letter from a known and trusted person from his city to make himself better known in the city he was going to, and reach the city he was going to with this letter, is also considered by some to be the beginning of the emergence of the "letter of guarantee".
The emergence of modern banking is considered to have first started in Mesopotamia. From the second century onwards, credit transactions were carried out against sureties, as well as the use of bonds, checks, and bills of exchange for borrowed money and precious metals from capital and banks.
In Europe, the first universal bank started its active activities in the 13th century, reaching the commercial authority in Florence and banking activities started to emerge after this date. In ancient times, merchants of goods, brokers or intermediaries, and transporters became the first banks to separate credit and deposit accounts on financial affairs.
Bardi, Peruzzi, and the Florentine Acciauioli were among the first bankers to achieve fame. They opened and managed bank branches in the most valuable cities of Europe in the early 14th century. King Eduard III of England resisted the Hundred Years' War and fought with great difficulty to repay the debts accumulated until 1345. However, all these efforts of King Eduard the Third did not yield any results and lost their effect. After the bankruptcy of the most important banker of the time, between 1348 and 1392, Vieri di Cambio de' Medici created a comprehensive bank with numerous branches in the most valuable cities of Europe. His nephew Giovanni di Bicci de Medici, whom he had raised and who was also his nephew, opened the first branch of this bank in Rome and took over the others. The bank, which had achieved the greatest success of the period, passed to the management of his two sons after Vieri Di Cambio de' Medici withdrew in 1393. After these developments, the bank went bankrupt and closed down. With his nephew taking over the management of the bank again, the bank again achieved success close to its old days.
Together with these initiatives, the Banco di San Giorgio was founded in Genoa in 1407. The most important difference between the Banco di San Giorgio and the family banks established up to that time was that this bank was established in a banking system similar to public institutions. Banco di San Giorgio is also considered the oldest bank in the world. For a long time, Banco di San Giorgio was the only discontobank and banner bank in its sector. In 1805, when Napoleon took over, it was closed by Napoleon again.
In 1462, Monte di Pieta was first established in Perugia. Subsequently, many Italian cities started to open banks. All these banks were established by establishing a connection with each other. At that time, Monte di Pieta was established as a safety deposit box by the Franciscan order. The aim of Monte di Pieta was, above all else, to enable bankers like the Medici and Strozzi to lend a helping hand to the poor and needy people by using the amounts obtained through credit and foreign exchange transactions. Founded in 1472 in Siena as Monte Di Penta, Banca Monte dei Paschi di Siena is the oldest bank still operating today.
Banks were needed for the distribution of work in politics and economics. The reason for this need was that the performances of economic and financial agents were exchanged for material goods. The intermediaries of all this money flow were credit institutions and organizations. At the same time, banks were also the intermediaries for the exchange between attrition claims and credit expectations. Credit institutions have a number of legal and regulatory arrangements, both national and international, arising from their impact on the economy. For instance, many activities such as management and accounting activities are controlled by audits. These audits are carried out by special institutions and authorities.
What Are the Functions of Banking?
Banking institutions can be defined as financial intermediaries that lend the deposits they obtain in different ways to individuals and institutions as loans and carry out all transactions related to capital and money-like issues. The main objective of banks, which are commercial institutions, is to maximize their profits. However, due to the nature of the activities they carry out in this process, they affect very important results in terms of public benefit. For this reason, to maximize the public interest, banks are kept under control and regulated through audits carried out by the state and governments.
The most important of the factors that provide a result in the public interest is to provide a faster increase in national income through the correct use of the collected funds in the most efficient areas possible.
Due to such features, all banks are differentiated from other commercial institutions and organizations in the markets. For this reason, these other institutions are subject to different regulations and laws by governments. It is important that trust in banks remains unshaken for the successful continuation of their functions. To summarize the functions of banking:
- Service Delivery
- Lending Credit
- Monetary Transactions
- All Payment Transactions
- Transfer of Incentives Related to Monetary Policy
- Investment Transactions
- Economic Functions
Which Channels Are Used in Banking?
Banks can communicate with their customers using different channels. Likewise, customers can benefit from banking services using these channels. These channels are as follows:
- Bank Branches
- ATM Services
- Home or Workplace Visits
- Sales Representatives
It refers to face-to-face services provided from branches through employees and systems in a retail area.
It is an ATM banking system that can be located near or far from banks, enabling customers to perform banking transactions.
Many banks accept cheque deposits through the mail. Likewise, mail can be used for customer communication.
Home or Workplace Visits
Where necessary, bank employees visit customers at their homes or workplaces. These visits are usually carried out through relationship managers who provide private banking or business banking services.
Sales representatives work on behalf of banks on a contractual basis. They aim to increase the bank's customer base and reach more people directly.
What Are the Types of Bank?
Banks have many different types due to their structure. Some of these types are as follows:
- Participation Banks
- Deposit Banks
- Investment Banks
- Development Banks
What Is Participation Bank?
Participation banks operate with interest-free banking systems. Although they have a similar structure to deposit banks, they collect a profit and loss-oriented participation fund instead of fixed-return deposits. Another important difference between participation banks from deposit banks is that while financial leasing transactions cannot be realized in deposit banks, financial leasing transactions can be realized in participation banks.
What Is Deposit Bank?
Deposit banks focus on deposit collection. With these collected resources, deposit banks provide financing for trade and production. They usually focus on short-term transactions and investments of up to one year. At the same time, deposit banks provide services to their customers through a large number of various banking products as well as a service such as fund transfer.
What Is Investment Bank?
Investment banks are not authorized to collect deposits. In addition, investment banks cannot offer the full range of banking services and products to customers due to the lack of a wide chain of branches. Compared to commercial banks, they have more limited commercial activities.
What Is Development Bank?
They are banks that are not authorized to collect deposits. Providing more productive investment in underdeveloped regions is among the objectives of development banks. Development banks are banking institutions based on medium and long-term fund raising and technical investments.
What Is the Relationship Between Banks and Cryptocurrencies Today?
Banks and cryptocurrencies still have a complex relationship. Some banks are more committed to traditional trends, while others are more open to innovations such as cryptocurrencies. While some banks support and are interested in the use of cryptocurrencies as a currency of value, others continue to oppose it. The distributed ledger technology used with blockchain technology works differently from the centralized ledgers used by traditional banks. For this reason, cryptocurrency trading platforms, which we can characterize as "banks of cryptocurrencies", are only focused on trading, unlike banks. Lending cryptocurrencies as loans or similar banking systems has not yet been sufficiently integrated into these platforms. By their very nature, cryptocurrencies have volatile values. This volatility can be shown as one of the reasons why institutions and organizations such as banks and central authorities are hesitant to cryptocurrencies. Although cryptocurrency investments and banks have common ground, there is still confusion and uncertainty as there is still no full integration today. On top of that, since legal regulations and governments' attitudes towards cryptocurrencies are also very different, it will take time for banks and cryptocurrencies to intertwine, if it will ever happen.
What Do Cryptocurrencies and Banks Have in Common?
Some banks have studies on cryptocurrencies, just like governments. Some important points in line with these studies are as follows:
- Cryptocurrencies Trading
- Storage and Warehousing of Cryptocurrencies
- Credit and Other Financial Services
- Regulation and Laws
- Risk and Uncertainty Factor
Today, some banking institutions have started to offer cryptocurrency trading services to their customers. These services can be provided through partnerships or agreements with organizations such as cryptocurrency trading platforms. Banking institutions have begun to work on integrating cryptocurrencies into traditional banking activities by offering specialized cryptocurrency wallet services and trading support to their customers.
Storage, Warehousing, and Security of Cryptocurrencies
For cryptocurrencies, security and custody are of utmost importance. Some banks use reassuring methods, such as cold storage, to store and safeguard their clients' cryptocurrencies.
Credit and Other Financial Services
Nowadays, some banks consider cryptocurrencies as collateral and provide services such as cryptocurrency collateralized loans or cryptocurrency management. Thanks to such services, cryptocurrency investors can obtain loans and invest using their cryptocurrencies.
Regulation and Laws
Banks are subject to specific regulations and laws designed for them. However, there are still no regulations or laws regarding cryptocurrencies in many countries. This mismatch is another important issue between cryptocurrencies and banks.
Risk and Uncertainty Factor
The inherent volatility of cryptocurrencies and the uncertainty of potential future regulation means that banks and similar institutions face some risks when dealing with cryptocurrencies. These uncertainties and risks are compounded by other factors, such as the sudden volatility of cryptocurrency markets and the vulnerability of some assets to manipulation. Vulnerabilities and risks of cyber-attacks also require banks to take more careful steps with cryptocurrencies.
Finally, the relationship between cryptocurrencies and banks is still evolving with regulations and agreements in place. There are theories that the two areas will have more in common in the future, but it will take time to materialize.