Chapter 11

Banking History and Development

As early as 2000 B.C. in the temples of Babylon
where the lending of gold, silver, and other items
of wealth were left for safekeeping.
Credit transactions where known during the reign
of King Pharaoh Nebuchadnezzar and were
recorded and found during early ninth century
Moratorium - an authorization to the debtor
permitting temporary suspension of payment or
delay of any action was already used in financial
transaction.
The first known registered institution as recorded
in the history was established in Venice in 1157
A.D.
Modern banking was introduced to the world by the
Bank of England, which was established in 1694 as
privately owned bank. it later became a
government bank and the monetary authority of
England in 1946.

Banking History and Development

Banking on the continent was in the hands of
powerful statesmen and wealthy private bankers
for more than three centuries.
The Bank of France was organized in 1800 by
Napoleon Bonaparte. it became the dominant
financial institution in France in 1848, when it
obtained the sole note issue privilege.
In Germany, banking experienced a rapid
development in the 19th century with the
establishment of several joint stocks, which were
publicly owned banks.
Lending business spread out and developed, they
issued promissory notes which where payable on
demand. these notes later developed together with
the business of lending.
The goldsmiths, in reality, were exercising basic
functions of the modern banking system. the notes
they issued are equivalent to the paper money we

Banking History and Development

The Bank of Canada opened in 1835 and
performed the function of a Central Bank. It has
the right to do note issue; it acts as banker of the
government, and manages the public debt.
The first important bank in the United States was
the Bank of North America. It was established in
1781 by the Second Continental Congress. The
banks were also allowed to accept deposits and to
make loans.
In 1791, the Federal Government chartered the
First Bank of the United States to serve both the
government and the public.
In 1838, the New York State passed a free Banking
Law. Before this date, all incorporated banks had
been chartered by the United States and had been
granted the note-issuing privilege.
Under free banking, charters could be obtained
without special act of the state legislature.

Banking History and Development

The main requirement for new banks was to post
collaterals of government bonds equal in value to the
notes to be issued.
The note holders were protected because if the bank
failed, proceeds from the sale of the collateral would
be used to reimburse them.
New York State developed the safety fund system.
In 1842, Louisiana enacted legislation to limit the
number of banks and to require them to maintain
one-third of their assets in cash and two-thirds in
short term obligations
During the civil war, Federal government financed its
outlays in part by printing irredeemable paper money
called greenbacks.
1865, prices have grown to be twice their level in
1861. Gold and silver coins were hoarded. The civil
war brought about the National Banking Act of 1863.

Banking History and Development

The National Bank Act was successful in correcting
some failings of the pre-civil war commercial banking
system.
There was a panic in 1907, which resulted in the
remedial legislation provided by the Federal Reserve
Act of 1913.
Federal Reserve System It was charged with
maintain sound credit conditions. It was given the
control over the minimum account reserve that
member banks must keep for each dollar of deposits.
It also regulates the types of assets that they can
hold.
Members of the Federal Reserve System are the
national banks, whose memberships are required, and
state banks whose memberships are optional.

Banking in the Philippines

Philippine banking system has evolved gradually over
the span of more than a century, starting from one
bank in 1851 to a multi-faceted system which
supplies credit to the growing financial requirements
of every sector in the countrys economy.
During the Spanish period, Obras Pias was organized
by Father Juan Fernandez de Leon in 1594.
Obras Pias religious foundation that accumulated
large funds from the legacies of wealthy individuals
who made out wills before going out on dangerous
expeditions, bequeathing their estates to the Church,
or to lay confraternities. The funds of the foundation
were first invested in loans to trades to finance the
galleon trade in Acapulco, Mexico.
Rodriguez Bank and Gorricho Bank did not last long.

Banking in the Philippines

Formal banking started in the country with the
establishment of the El BancoEspanol-Filipino de
Isabel II, ( later changed to El Banco de Islas Filipinas )
which is now known as the Bank of the Philippine
Islands. It is the first commercial bank organized in
the Far East.
Countrys first savings bank was Monte de Piedad y
Caja de Ahorros de Manila ( now known as the Monte
de Piedad and Savings Bank ) was founded by Father
Felix Huertas.
During the American period, those banks were
allowed to continue operations. More banks were
opened to finance the increasing demand of trade in
the country. Most of the banks were practically
dominated by foreign interest until the Philippine
National Bank was organized in 1916 under Act no.
2612. It was made the sole depository of government
funds and had the authority to issue currency notes

Banking in the Philippines

Philippine Bank of Commerce first private

commercial bank in the country wholly owned by
Filipinos, was opened for business in 1938. It was
absorbed by the Philippine Commercial and Industrial
Bank.

The findings of the study were as

follows:

1.The legislated specialization in the

Philippine banking
2.There is more preference for shortterm lending and slow growth of
long-term deposits

Based on the findings, the mission

recommended the following:

1.The legislated specialization in the Philippines

should be removed.
2.Financial institutions were to be encouraged to
extend more of long-term funds.
3.An active capital market was to be developed and
the lender-of-last resort facility of the Central Bank
should be fully utilized to maintain the liquidity of
banks.

The New Central Bank (Bangko Sentral

ng Pilipinas)
1.Change in the composition of the Money Board
2.It has for its primary objective
3.Strengthening of the regulation and supervision
framework for banks
4.Abolition of two suspense accounts Monetary
Adjustment Account (MAA) and Exchange
Stabilization Adjustment Account (ESSA)
5.The phase-out of fiscal agency function

The New Central Bank (Bangko Sentral

ng Pilipinas)
1.The Phase-out of regulatory functions over finance
companies w/o quasi-banking functions within a
period of 5 years
2. Require additional mandatory reports to assure
accountability
3.The financial restructuring of the CB upon the
effectivity of this law
4.The imposition requirements of accounts trust by
the Monetary Board or authorized under the new
law
5.Loans and advance made by the CB to any bank

Advantages of the Establish of the New

Cenral Bank (Bangko Sentral ng
Pilipinas)
1.Government assumption of certain liabilities of the
old CB will lower inflation
2.Lower interest rate & the result to higher economic
growth