History of Banking: Famous Banks from the Past

Seven hundred years ago a bank was established in Venice, which made transactions resembling modern banking. In 1407, another bank was founded in Italy under the name of Banco di San Giorgio which was one of the oldest chartered banks in Europe. Sveriges Riksbank (Riksbanken), is the central bank of Sweden and the world's oldest central bank. The Bank of England is the second oldest central bank in the world, and most modern central banks have been based on that model. Let us explore some interesting events as we learn more about these early banking institutions.

The Bank of England

The Bank of England (formally the Governor and Company of the Bank of England) is the central bank of the United Kingdom and the model on which most modern central banks have been based. It is the second oldest central bank in the world (the oldest being the Sveriges Riksbank (Bank of Sweden), established in 1668). The Bank of England was founded in 1694 to act as the Government's banker and debt-manager, since then it has evolved to manage the nation's currency and its position at the center of the UK's financial system. The bank got nationalized in 1946. It acts as the government’s bank, regulates the money stock growth rate and the availability of credit, and serves as a banker’s bank for commercial banks, making loans and holding deposits. Like all central banks, it holds the exclusive privilege to issue banknotes (paper money). The Bank managed the Government's accounts and made loans to finance spending at times of peace and war. A commercial bank too, it took deposits and issued notes. During the 18th Century, the Government borrowed more and more money. These outstanding loans were called the National Debt. In May 1997 the Government gave the Bank responsibility for setting interest rates to meet the Government's stated inflation target. This was enshrined in the 1998 Bank of England Act. Today, the Bank's governing body is made up of the Bank's Governor and 2 Deputy Governors, and 9 Non-Executive Directors (under the Banking Act 2009).

Swiss Banks

Swiss banks enjoy a worldwide reputation for protecting the identity of depositors. This important characteristic helped Switzerland grow to one of the world’s major banking centers in the twentieth century. Another factor contributing to the growth of Swiss banking is Switzerland’s position of neutrality. On 20 May 1815, the Vienna Congress established the permanent neutrality of Switzerland among the European powers—a position the superpowers of the world honored through two great wars in the twentieth century. Switzerland was not a pioneer in early European banking. Geneva was the first of the Swiss cities to become a banking center. By 1709 Geneva boasted of a dozen bankers who left a name in Swiss financial history, and Louis XIV floated loans in Geneva to finance his wars. Geneva bankers kept close ties with France and remained involved in financing French public debt until the end of the nineteenth century. Basel developed a significant banking industry only in the nineteenth century. In 1862 the Basel Register-listed 20 banks, 9 of which were exclusively devoted to banking.

The financial activity of various sorts appeared in Zurich during the sixteenth century. In 1679 an injunction from the city council prohibited a reduction of interest rates from 5 percent to 4 percent. Merchant bankers, who accepted deposits for investment in securities, appeared in the middle of the eighteenth century. Zurich waited until 1786 to see the formation of a bank in the broad sense. In 1805 the official register of Zurich reported two banks devoted exclusively to banking. By the eve of World War I Switzerland ranked as one of the international financial centers. Six large banks, Swiss Credit Bank, Swiss Bank Corporation, Union Bank of Switzerland, Trade Bank of Basel, Federal Bank, and Swiss People’s Bank, controlled a system of branches throughout Switzerland. These banks floated international loans for European governments and railroads and other industrial concerns in the United States. After World War I, inflation in the currencies of the former belligerents made Switzerland more attractive as a safe haven. In the post–World War II era three of the big banking houses remained in business, the Swiss Credit Bank, the Swiss Bank Corporation, and the Union Bank of Switzerland. There was also a large network of smaller banks, rural loan associations, and branches of foreign banks. In 1968 Switzerland had a population of 6 million people and 4,337 banking offices, which added up to one banking office for every 1,400 individuals.

In the 1930s Switzerland enacted laws that strengthened the anonymity protection of depositors in Swiss banks. During that time some countries prohibited citizens from holding assets abroad on pain of criminal penalties and even sent agents to Switzerland to track down assets owned by their own citizens. On the other hand, some people wanted to keep deposits in Switzerland in case they had to make a hasty departure from their homeland for political or racial reasons. Swiss banks began opening the so-called numbered accounts, which substantially reduced the number of bank employees who knew the name of a depositor. Also, the Swiss government claimed no right to pry into bank accounts either to collect information on its own citizens or the citizens of foreign countries. Governments around the world have lodged complaints against Swiss banks for holding deposits of foreigners evading taxes. Switzerland recently has yielded to pressure to open up information on deposits when criminal activity and tax evasion are involved. 

In 1997 it came to light that Switzerland, thought to have been a neutral country in World War II, acted as a banking center for Nazi Germany and that Swiss commercial banks had accepted three times as much gold in deposits from Nazi Germany’s central bank as was originally thought. Jewish groups launched a class-action lawsuit in an effort to force Swiss banks to compensate Holocaust victims, emphasizing that Swiss banks held on to dormant accounts of Holocaust victims and laundered millions of dollars in gold stolen from Jews. On 12 August 1998 representatives of Holocaust survivors and Swiss banks announced a $1.25 billion reparation settlement to compensate Holocaust survivors and their heirs.

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