Thus the goldsmiths of London became the forerunners of banking by creating new money based on credit. The promissory notes developed into an assignable instrument which could circulate as a safe and convenient form of money Д«acked by the goldsmith's promise to pay, ДЄllowing goldsmiths to advance loans with little risk of default. 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. Marchant, 1 Phillips 360) it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.' ДЄnd 'oney, when paid into a bank, ceases altogether to be the money of the principal (see Parker v. Thus by the 19th century we find 'n ordinary cases of deposits of money with banking corporations, or bankers, the transaction amounts to a mere loan or mutuum, and the bank is to restore, not the same money, but an equivalent sum, whenever it is demanded'. Gradually the goldsmiths began to lend money out on behalf of the depositor, and promissory notes (which evolved into banknotes) were issued for money deposited as a loan to the goldsmith. 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. Merchants started to store their gold with the goldsmiths of London, who possessed private vaults, and who charged a fee for that service. Sealing of the Bank of England Charter (1694), by Lady Jane Lindsay, 1905.ДЇractional reserve banking and the issue of banknotes emerged in the 17th and 18th centuries. The Republic of Genoa founded the earliest-known state deposit bank, Banco di San Giorgio (Bank of St. Giovanni di Bicci de' Medici set up one of the most famous Italian banks, the Medici Bank, in 1397. The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe. The present era of banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence, Lucca, Siena, Venice and Genoa. Archaeology from this period in Iran, ancient China and India also shows evidence of money lending. Lenders in ancient Greece and during the Roman Empire added two important innovations: they accepted deposits and changed money. The concept of banking may have begun in the times of ancient Assyria and Babylonia with merchants offering loans of grain as collateral within a barter system. This 15th-century painting depicts money-dealers at a banca (bench) during the Cleansing of the Temple.

The oldest existing retail bank is Banca Monte dei Paschi di Siena (founded in 1472), while the oldest existing merchant bank is Berenberg Bank (founded in 1590). In the history of banking, a number of banking dynastiesВ вЂ“ notably, the Medicis, the Fuggers, the Welsers, the Berenbergs, and the RothschildsВ вЂ“ have played a central role over many centuries.

In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, the Basel Accords.Д«anking in its modern sense evolved in the fourteenth century in the prosperous cities of Renaissance Italy but in many ways functioned as a continuation of ideas and concepts of credit and lending that had their roots in the ancient world. Most countries have institutionalised a system known as fractional reserve banking, under which banks hold liquid assets equal to only a portion of their current liabilities. Lending activities can be directly performed by the bank or indirectly through capital markets.Д«ecause banks play an important role in financial stability and the economy of a country, most jurisdictions exercise a high degree of regulation over banks. A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans.

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