Banker

Banker in Europe

Definition of Banker

A person who receives the money of his customers on deposit, and pays it out again in a manner agreed upon. The relation between banker and customer is that of debtor and creditor (with a superadded obligation arising out of the custom of bankers to honour the drafts of customers), not of trustee and ccstui (fue trust or of principal and agent. See, historically, the case: London Joint Stock Bank v. Macmillan. This definition of Banker is based, from A Concise Law Dictionary (1927).

(For further definitions of Banker in the legal Dictionaries, click here).

Historical Developments

Banks in Europe from the 16th century onwards may be divided into two classes, the one described as “exchange banks,” the other as “banks of deposits.” These last are banks which, besides receiving deposits, make loans, and thus associate themselves with the trade and general industries of a country. The exchange banks included in former years institutions like the Bank of Hamburg and the Bank of Amsterdam. These were established to deal with foreign exchange and to facilitate trade with other countries. The others —founded at very different dates— were established as, or early became, banks of deposit, like the Bank of England, the Bank of Venice, the Bank of Sweden, the Bank of France, the Bank of Germany and others. Some reference to these will be made later. The exchange banks claim the first attention. Important as they were in their day, the period of their activity is now generally past, and the interest in their operations has become mainly historical.

In one respect, and that a very important one, the business carried on by the exchange banks differed from banking as generally understood at the present time. No exchange bank had a capital of its own nor did it require any for the performance of the business. The object for which exchange banks were established was to turn the values with which they were entrusted into “current money,” “bank money” as it was called, that is to say, into a currency which was accepted immediately by merchants without the necessity of testing the value of the coin or the bullion brought to them. The “value” they provided was equal to the “value” they received, the only difference being the amount of the small charge they made to their customers, who gained by dealing with them more than equivalent advantages.

Short notices of the Bank of Amsterdam, which was one of the most important, and of the Bank of Hamburg, which survived the longest, its existence not terminating till 1873, will suffice to explain the working of these institutions.

The Amsterdamsche Wisselbank, or exchange bank, known later as the Bank of Amsterdam, was established by the ordinance of the city of Amsterdam of 31st January 1609. The increased commerce of Holland, which made Amsterdam a leading city in international dealings, led to the establishment of this bank, to which any person might bring money or bullion for deposit, and might withdraw at pleasure the money or the worth of the bullion. The ordinance which established the bank further required that all bills of 600 gulden (£50), or upwards—this limit was, in 1643, lowered to 300 gulden (£25)—should be paid through the bank, or in other words, by the transfer of deposits or credits at the bank. These transfers came afterwards to be known as “bank money.”

The charge for making the transfers was the sole source of income to the bank. The bank was established without any capital of its own, being understood to have actually in its vaults the whole amount of specie for which “bank money” was outstanding. This regulation was not, however, strictly observed. Loans were made at various dates to the Dutch East India Company. In 1795 a report was issued showing that the city of Amsterdam was largely indebted to the bank, which held as security the obligations of the states of Holland and West Friesland. The debt was paid, but it was too late to revive the bank, and in 1820 “the establishment which for generations had held the leading place in European commerce ceased to exist.” (See Chapters on the Theory and History of Banking, by Charles F. Dunbar, p. 105.)

Similar banks had been established in Middelburg, (March 28th, 1616), in Hamburg (1619) and in Rotterdam (February 9th, 1635). Of these the Bank of Hamburg carried on much the largest business and survived the longest. It was not till the 15th of February 1873 that its existence was closed by the act of the German parliament which decreed that Germany should possess a gold standard, and thus removed those conditions of the local medium of exchange—silver coins of very different intrinsic values—whose circulation had provided an ample field for the operations of the bank. The business of the Bank of Hamburg had been conducted in absolute accordance with the regulations under which it was founded.

The exchange banks were established to remedy the inconvenience to which merchants were subject through the uncertain value of the currency of other countries in reference to that of the city where the exchange bank carried on its business. The following quotation from Notes on Banking, written in 1873, explains the method of operation in Hamburg. “In this city, the most vigorous offshoot of the once powerful Hansa, the latest representative of the free commercial cities of medieval Europe, there still remains a representative of those older banks which were once of the highest importance in commercial affairs. Similar institutions greatly aided the prosperity of Venice, Genoa, Amsterdam and Nuremberg.

The Bank of Hamburg is now the last survivor of these banks, whose business lay in the assistance of commerce, not by loans, but by the local manufacture, so to speak, of an international coinage. In a city of the highest rank of commercial activity, but greatly circumscribed in territory, continually receiving payments for merchandise in the coin of other countries, a common standard of value was a matter of primary necessity. The invention of bank money, that is, of a money of account which could be transferred at pleasure from one holder to another, enabled the trade of the place to be carried on without any of those hindrances to business which must have followed on the delay and expense attendant on the verification of various coins differing from each other in weight, intrinsic value, standard of purity of metal, in every point in fact in which coins can differ from each other. By supplying a currency of universal acceptation the Bank of Hamburg greatly contributed to the prosperity of that city.” The regulations being strictly carried out, the currency was purely metallic; the “Mark Banco” being merely the representative of an equal value of silver.

For the earliest example of a bank for the receipt of deposits carrying on a business on modern lines, we must turn, as in the case of the exchange banks, to a great commercial city of the middle ages. Private banking in Venice began as an adjunct of the business of the campsores or dealers in foreign moneys. “As early as 1270 it was deemed necessary to require them to give security to the government as the condition of carrying on their business, but it is not shown that they were then receiving deposits. In an act of the 24th of September 1318, however, entitled Bancherii scriptae dent plegiarias consulibus, the receipt of deposits by the campsores is recognized as an existing practice, and provision is made for better security for the depositors.” From this act it becomes clear that between 1270 and 1318 the money-changers of Venice were becoming bankers, just as the same class of men became in Amsterdam a couple of centuries later, and as later still the goldsmiths in London.

The first public bank in Europe

Of the early banks in Europe, the bank in Venice, the Banco di Rialto, was established by the acts of the Venetian senate of 1584 and 1587. This appears to have been the first public bank in that city and in Europe. The senate by the act of the 3rd of May 1619[ A translation of the act of the 3rd of May 1619 may be found in the appendix to the Quarterly Journal of Economics (Boston, U.S.A.) for April 1892. These documents present a distinct picture of banking in its true sense.] established by the side of the Banco di Rialto a second public bank known as the Banco Giro, or Banco del Giro, which ultimately became the only public bank of the city and was for generations famous throughout Europe as the Bank of Venice. Earlier than this the campsores or dealers in foreign moneys had carried on the business.

The Bank of Venice (Banco del Giro) appears to have been called into existence by the natural developments of trade, but some banks have been established by governments and have been of great service to the development of the countries in which they have carried on their business. Of these, the Bank of Sweden (the Riksbank), established in 1656, is the earliest. This bank still exists and has always been the state bank of Sweden. It was founded by a Swede named Palmstruck, who also invented the use of the bank note—perhaps adapted for use in Europe is the better expression to employ, as notes were current in China about A.D. 800. The first bank note was issued by the Riksbank in 1658. An enquête made by the French government in 1729 recognizes the priority of Sweden in this matter, and declares the bank note to be an admirable Swedish invention, designed to facilitate commerce.

Source: Encyclopedia Britannica (1911)


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