IntroductionFinancial development is paramount for economic growth. The emergence of international banking has boosted the efficacy of financial transactions across the globe. Financial systems and intermediaries, which are constituents of international banking, act as a link between the lenders (financial institutions) and the borrowers (clients) irrespective of their nationality. International banking helps lowers transaction costs, monitors moral hazards of borrowers or clients from different nationalities. Venturing into international banking systems has enabled domestic banks to diversify economical risks. Since the inception of international banking systems, drastic modification and changes have occurred.
Ideally, the international banking systems used during the early days have greatly changed due to changes in the technology and customers’ needs and demands in the global market economy. The economic ups and downs have necessitated changes in the banking industry so as to effectively promote stability and economic prowess. This paper attempts to critically analyze transformations that have occurred in the banking industry (international) and the forces that led to these changes (Bank for International Settlements 2008, 38). DiscussionsEvolution of the International Banking IndustryBanking industry has undergone rapid transformations. The structures and systems that are used currently are quite from those used in the ancient days.
The inception of the banking industry dates back in 1600 BC in Babylonian Empire. During this time, the currency invented by the Chinese in the east was used. Coin dealers, silversmiths, money changers, inspectors and deposit and transfer bankers were the most common types of trade transactions that employed international banking system. The first International Banking network systems was first establish in Italian city states after a big crusade held between 1095 and 1272.
The major change was realized in 13th century when florin and ducat used in Florence and Venice states were first accepted in loans. The Trade Fair and its system of credit was first initiated in early 11th century, during which North and South Europe convene a meeting to discuss international financial integrations systems. The financial interests group who attended a group agreed to establish laws and regulations applicable to the banking industry (Bank for International Settlements, 2008, 39). Italians merchants are applauded for their great efforts towards changing the banking industry to meet the expected needs and demands.
Between 12th and 13th century, the early banks used by Italian merchants introduced double-entry keeping systems. Additionally, the exchange banks adopted procedures that led to creation of commercial and clearance of clients’ obligations by the book transfer method. Remarkable changes were noticed between 13th and 14th century when exchange banks, large merchant banks and pawn banks emerged in Italian city states. These financial institutions serve diverse needs of the clients, and this was regarded as dynamic changes that would satisfy traders from both domestic and overseas economies. Rapid expansion in the international banking and overall industry took place between 13th century and 16th century.
International banks such as Medici and Fugger of Europe started offering trade finance to private households. These banks also lend money to sovereign states facing bankruptcy problems. In 15th century, the first European hub was established in Antwerp, and it offered capital and credit to sovereign countries depending on the nation’s guaranteed tax revenue. The religious class criticized the operations of this hub and collapsed in the late 15th century.
Sophisticated international banking infrastructure and organized markets emerged in 18th century when Amsterdam experienced political stability. The development of Amsterdam Exchange Bank and Stock Exchange led to trading of different types of financial securities.