IntroductionSay no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get the original essay Bank, what Wikipedia says is, a financial institution that accepts deposits from the public and creates credit. Banking began with the earliest prototypes of merchant banks in the ancient world, which provided grain loans to farmers and traders who transported goods between cities. This system is known as the barter system. It began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and the Roman Empire, temple-based moneylenders provided loans and added two important innovations: they accepted deposits and changed money. Archeology from this period in ancient China and India also shows evidence of money lending activities. Banking in its modern sense evolved in the 14th century in the prosperous cities of Renaissance Italy, but in many ways it was a continuation of ideas and concepts of credit and lending that had their roots in the world antique. Modern banking practices, including fractional reserve banking and bank note issuance, emerged in the 17th and 18th centuries. The banking industry underwent a major transformation during the first half of the 20th century with World War I, followed by a major financial crisis in the 1930s. Many technological innovations such as MICR (ink character recognition) magnetic) and ATM (automated teller machine) have expanded the scope of the banking sector. During the second half of the century, fierce competition forced the innovation of exotic products such as mortgage-backed securities (MBS)/collateralized debt obligations (CDOs) for sale to investors, which which is a type of securitization, as well as a form of credit insurance called Credit Default Swaps (CDS). The 21st century has been subject to immense structural and operational changes. A dominant pressure arises from new technologies in relation to information, commerce and the provision of financial services. The financial innovations and complexity of the recent era make the sector very different from the traditional deposit and loan system. The first decade of the 21st century also saw the culmination of technical innovation in banking over the previous 30 years and saw a major shift from traditional banking to Internet banking. The aim of this project is to take into account all the technological nuances of banking products and the risks emanating from those of the modern banking system. Literature Review In 1914, an economist named William A. Scott, a business course director and professor of political economy at the University of Wisconsin, wrote a book about banking called "Banking." It is quite remarkable to keep the concept of baking on this era as a reference and compare it with how the modern era has changed this orthodox perception of the industry. According to the book, the terms "bank" and "banking" are applied to institutions and businesses which differ considerably in character, functions and methods, but which nevertheless have certain common features which justify their grouping. The best way to set the stage for a discussion of these differences and common characteristics is to describe the services these institutions provide to modern society. Services provided by banks From the point of view of their customers, these services can be grouped under the headingsfollowing: - Keeping money and other valuables: This is a common practice everywhere and in some countries, particularly in the United States, almost a common practice. This is a universal practice where people entrust their money to banks for safekeeping. To some extent, hoarding, that is, locking up money in private safes and other containers and keeping it under the supervision and personal custody of its owner, is still practiced, but it is undoubtedly in decline in all civilized countries. . The practice of entrusting banks with custody of other valuables, such as important documents, jewelry, silverware, etc., is also widespread and growing. The manufacture of payments The money custody service naturally leads to the second, that of making payments. When we entrust our means of payment to a bank, it is natural that we also make them our treasurer and our disbursing agent, and that is what we do. If we have payments to make to people at home, in other cities in our own country or in other countries, we usually ask our bank to carry out the service for us. The Granting of Loans Loans of almost all kinds are made by banks, and certain types, notably those made to businessmen for the daily conduct of commerce and industry, are made almost exclusively by them. They are mostly short stay resorts which are also one of the main resorts, but in some countries they are not as monopolized as short stay resorts. Making Investments For investment of people's surplus funds, banks are the main agencies. This function primarily takes the form of selling stocks, bonds, and mortgages, and sometimes promoting new businesses. An article written by Jon Ogden, Director of Content Marketing at MX, comparing the banking industry at www.MX.com pointing out exactly what has changed over the last hundred years. The services Scott describes are much the same in modern banking. But the methods of delivering each of these services have changed – and therefore everything has changed. In short, the 20th century was about paper and locality while the 21st century was about data and networks. Bankers should ask themselves if they are too tied to 20th century methods in a 21st century world. The implications of the changes in the banking sector are enormous. For proof, let's look at each of the four services described by William Scott in 1914 and how they have changed in 2017: The custody of money and other valuables. The conservation method in the 21st century bears almost no resemblance to traditional methods. Money is usually just a handful of numbers on a network, and storing this data does not require large physical vaults. This simply requires secure digital storage, which can be hosted entirely outside of a bank branch. Additionally, the need for a bank to store “other valuables” is virtually non-existent. 45% of safes are empty and new agencies often don't even offer this service. Documents are stored digitally or in a home safe without the monthly fees associated with a safe. Young people, in particular, have difficulty understanding the value of this service: payment. Something similar happens with payments. Square Cash, an app that lets users send payments via email or phone, just added the ability to sendmoney by SMS. In other words, what technology writer Walt Mossberg described as "the quickest, easiest method I've seen for sending money from one person to another" just got simpler . And with other companies like PayPal, Dwolla, and Venmo at the forefront of the industry, payments will increasingly be independent of banks and credit unions. This point was amplified in an article by Jim Marous earlier this month titled "Google, Apple, Facebook and Amazon should terrify the banking industry." Marous' main argument is that bankers are stuck in the traditional mindset and don't realize that tech giants could easily move into banking through fringe businesses such as payments. (which is increasingly likely as people accept the concept of transferring money over the phone), and payment revenues at banks and credit unions will dry up. At this point, financial institutions will not only say goodbye to checks, they will also say goodbye to paying bills. Banks must anticipate this problem now and look for new solutions. The granting of loans Generally speaking, this banking sector is largely the same as in 1914. Credit certainly remains the stronghold of the banks. However, as we discussed in our article on the giants of the technology and P2P lending, this could also change. With the advent of the Internet, it is easier than ever for individuals to provide loans to a diverse set of individuals, all without the intermediation of banks. Indeed, the rise of lenders like Prosper, Lending Club, and Fundera is proof that person-to-person lending works – especially because the largest P2P lenders have collectively grown from $1.2 billion to $3.5 billion in outstanding loans between 2012 and 2013. small change compared to the total amount of loans from banks and credit unions, the growth is expected to be in the banking sector (as well as the fact that Google has invested in Lending Club and the fact that Lending Club announced its IPO). If this trend continues, P2P lending could become a major force within a decade, eating into financial institutions' bottom lines. Making Investments The popularity of automated investing has begun to make active money managers unnecessary. An article in this week's Wall Street Journal puts it bluntly: "Active fund management is outdated, and many stock-picking managers are going to have to find something else to do to make a living." » The article continues: "The debate over whether to hire an 'active' fund manager who tries to beat the market by buying the best stocks and avoiding the worst - or a 'passive' index fund which simply adjusts to the market by holding all the shares. actions are over. Sooner or later, investments will shift towards automation. It's cheaper and in almost all cases the returns are better in the long run. The economic functions of banks Considered from the point of view of the nation rather than that of individuals, the functions of banks can be described as those of intermediaries in trade and in the investment of capital. In the first case, they provide the world with most of its means of exchange and serve as distribution agents for that portion of the supply that comes from other sources. They create a medium of exchange through a process of accounting that extends on a global scale and by which the mutual indebtedness of individuals,cities and other subdivisions of countries and nations, caused by purchases and sales on credit, is compensated. without using money. The practice of depositing excess funds with banks for safekeeping and hence everyone's dependence on banks for obtaining currency in any form, has therefore placed on them the responsibility of using directly all sources of the money supply. Thus, while the mints of the United States and most other countries mint gold bars and subsidiarily supply silver, copper and nickel coins to individuals on the same terms as to banks, in reality few individuals take advantage of this privilege. , finding it more convenient and profitable to obtain the coin they want from banks. The same applies to government notes in countries where these notes constitute part of the currency. The accumulation of a nation's capital and its investments require the cooperation of many agencies, of which banks are the principal ones. They collect savings from the population, pool them into sufficient amounts for investment purposes, and invest them temporarily and sometimes permanently. The organizations cooperating in this work are insurance companies, companies of various kinds for the promotion of savings, stock exchanges, promoters, etc. Some of them replace banks in carrying out these services, while others complement and assist them. Classification of banking institutions Banks differ from each other mainly by the nature and degree of their specialization, by their legal status and by the place they occupy in the system to which they belong. Some banks devote most of their efforts to conducting trade and are called commercial banks, others to investment banking and are called investment banks. The most common subclasses under this latter heading are savings banks, land or mortgage banks, and bond companies. Savings banks specialize in the collection and placement of small savings; land banks are primarily intermediaries between capitalists and people who wish to invest capital in land, construction and agriculture; and bond companies are intermediaries between capitalists and those who wish to invest capital in industrial, commercial, and transportation enterprises, or lend it to states, cities, or other public corporations. Commercial banks rarely limit themselves exclusively to conducting trade. Most of them also run savings banks and invest the funds entrusted to them through these banks in agricultural, industrial or public enterprises. The commercial banks, however, constitute their main concern, their other departments being secondary matters of greater or lesser importance depending on the circumstances. Investment banks also frequently engage in commercial banking activities on a secondary basis. These two sectors of activity are sometimes mixed in such proportions that a classification is difficult to establish. From a legal perspective, banks in almost any country can be classified as private or unincorporated, and sometimes also called joint stock banks. Private banks are created by individuals or businesses, like any other private business, without the formality of seeking authorization from a public official and without complying with a set of legally prescribed regulations. They are subject to the laws of the country governing all kinds.