EBK THE ECONOMICS OF MONEY, BANKING AND
EBK THE ECONOMICS OF MONEY, BANKING AND
4th Edition
ISBN: 8220100668203
Author: Mishkin
Publisher: PEARSON
Question
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Chapter 11, Problem 1LO
To determine

The key features of the banking system and the historical context of the implementation of these features.

Concept Introduction:

An institution that deals in money or money-like commodities are known as a bank. In today’s world, there are number of banks and those are specialized in rendering a particular service or providing all the services. The banks, nowadays, provide a lot of facilities. However, this was not the case always, when the history of banking goes back to 2000 BC in Assyria and Sumeria.

Expert Solution & Answer
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Explanation of Solution

The key features of the banking system and its context to the historical era are listed below.

1. Safe and Secure deposits: The concept of safe in the temple in the 18th Century BC where people used to hide their gold and silver in the temple as it was considered the safest place and the priest would take care of the wealth and provide it to the owner on demand. Here the temple worked as a bank where the priest carried out the responsibility of safely securing the wealth of its customer.

2. Intermediary and Financial Institution: The Greek and Roman financers in the 4th Century BC accepted deposits, gave loans, arrange credit and maintained books like a financial institution and Intermediary.

3. Issuing loans: The Jews, who were barred from a usual form of employment in the 12th and 13th century, provided finance to the European and the Christian communities.

4. Legal Entity: In the 13th and the 14th century, the European monarchs started accepting loans from then formed banking institutions that would provide easy loans to the kings for development and wars.

5. Solvency: Adam Smith’s idea was to establish a self-regulated economy of bankers and money lenders that were managed by the state. These state, charter banks that issued bank notes against gold and silver deposits extended loans in their bank notes. However, they issued loans more than the deposits of gold and silver, and because of lack of regulation, they failed when the depositors redeemed their banknotes.

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