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1.1. HISTORY OF BANKING

The History of Banking begins with the first prototype banks of merchants of the ancient

world, which madegrain loans to farmers and traders who carried goods between cities. This

began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the

Roman Empire, lenders based in temples made loans and added two important innovations:

they accepted deposits and changed money. Archaeology from this period in ancient China

andIndia,also shows evidence of money lending activity.

Banking, in the modern sense of the word, can be traced to medieval and early Renaissance

Italy, to the rich cities in the north such as Florence, Venice and Genoa. The Bardi and

Peruzzi families dominated banking in 14th century Florence, establishing branches in manyother parts ofEurope.Perhaps the most famous Italian bank was theMedicibank, established

by Giovanni Medici in 1397.

The development of banking spread from northern Italy through Europe and a number of

important innovations took place in Amsterdam during the Dutch Republic in the 16th

century, and in London in the 17th century. During the 20th century, developments in

telecommunications and computing caused major changes to banks operations and let banks

dramatically increase in size and geographic spread. The Late-2000s financial crisis caused

many bank failures, including of some of the world's largest banks, and much debate about

bank regulation.

1.1.2. Origin of bank

The word bank was borrowed in Middle English from Middle French banque, from Old

Italian banca, from Old High German banc, bank "bench, counter". Benches were used as

desks or exchange counters during theRenaissancebyFlorentinebankers, who used to make

their transactions atop desks covered by green tablecloths.

One of the oldest items found showing money-changing activity is a silver Greek drachm

coin from ancient Hellenic colony Trapezus on the Black Sea, modern Trabzon,c. 350325

BC, presented in theBritish Museum in London. The coin shows a banker's table laden with

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coins, a pun on the name of the city. In fact, even today in Modern Greek the word Trapeza

means both a table and a bank.

1.1.3. Origin of banking in India

In ancient India there is evidence of loans from the Vedic period (beginning 1750 BC). Later

during the Maurya dynasty (321 to 185 BC), an instrument called adesha was in use, which

was an order on a banker desiring him to pay the money of the note to a third person, which

corresponds to the definition of a bill of exchange as we understand it today. During the

Buddhist period, there was considerable use of these instruments. Merchants in large towns

gave letters of credit to one another.

1.1.4. Definition of banking

Generally we can say that a bank is a financial institution and a financial intermediary that

accepts deposits and channels those deposits into lending activities, either directly or through

capital markets. A bank connects customers that have capital deficits to customers with

capital surpluses.

The definition of a bank varies from country to country. Under English common law, a

banker is defined as a person who carries on the business of banking, which is specified as:

Conductingcurrent accounts for his customers

Payingcheques drawn on him, and

Collectingcheques for his customers.

In most common law jurisdictions there is a Bills of Exchange Act that codifies the law in

relation to negotiable instruments, including cheques, and this Act contains a statutory

definition of the term banker: banker includes a body of persons, whether incorporated or not,

who carry on the business of banking'. Although this definition seems circular, it is actually

functional, because it ensures that the legal basis for bank transactions such as cheques does

not depend on how the bank is organized or regulated

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The business of banking is in manyEnglish common law countries not defined by statute but

by common law. In other English common law jurisdictions there are statutory definitions of

the business of banking or banking business. When looking at these definitions it is important

to keep in mind that they are defining the business of banking for the purposes of the

legislation, and not necessarily in general. In particular, most of the definitions are from

legislation that has the purposes of entry regulating and supervising banks rather than

regulating the actual business of banking. However, in many cases the statutory definition

closely mirrors the common law. Examples of statutory definitions:

"banking business" means the business of receiving money on current or deposit

account, paying and collecting cheques drawn by or paid in by customers, the making

of advances to customers, and includes such other business as the Authority may

prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2,

Interpretation).

"banking business" means the business of either or both of the following:

1. Receiving from the general public money on current, deposit, savings or other similar

account repayable on demand or within less than 3 months or with a period of call or

notice of less than that period.

2. Paying or collecting checks drawn by or paid in by customers.

Since the advent ofEFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit,direct

debit and internet banking, the cheque has lost its primacy in most banking systems as a

payment instrument. This has led legal theorists to suggest that the cheque based definition

should be broadened to include financial institutions that conduct current accounts for

customers and enable customers to pay and be paid by third parties, even if they do not pay

and collect cheques.

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1.2. GLOBAL BANKING INDUSTRY

The financial services sector is emerging from the worst financial crisis for 80 years. Tighter

regulation, an overhang of debt in the west and the immense growth in the power of banks in

emerging economies will transform the landscape of banking. What opportunities and threats

will t