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Monday, March 4, 2024

    Merchant Banking Origin

    Meaning and Origin of Bank

    The word „Bank‟ is widely and extensively used and circulated. The “Bank‟ in English carries the same meaning in Bengali. The origin of English word “Bank‟ came into being (when, where and how) which could not be specifically identified.

    The history regarding the origin of “Bank‟, even after the twelfth century, is not also clear which has been based on guesses. According to some writer the word „Bank‟ was derived from “Banco‟, “Bancus‟, “Banque‟ or “Banc‟ all of which mean a bench upon which the mediaeval European Money-lenders and Money –Changers used to display their coins.

    This word has been in use from the middle ages in connection of a bank. In the words of German writer W. Frankace, a long stool or bench was said to be replaced by Bank, Bangke etc. in the Scandinavian and Mid-European countries. Again, Dutch and French words “Banque‟, “Bangko‟ were used to mean stool or bench and in course of time the word “Bank‟ came into effect.

    The Dawn of Merchant Banking

    Although money lending and money changing are very old activities (there are records of loans by Babylonian temples as early as 2000 b. C.), the early beginnings of investment and commercial banking may be traced to twelfth century Italy.

    The weakening of church restrictions on economic activity during the Renaissance and the growth of maritime ties of coastal Italian cities with the Levant set the stage for the rise of Italian merchant banking houses.

    As these coastal cities grew to be an important conduit for trade with the European interior, some of the larger merchant banks extended their activities to other European countries and carne to twelfth through the fifteenth centuries. These family-owned and managed firms are generally viewed as the predecessors of modern commercial banks.

    In addition to accepting deposits and financing foreign trade, these houses made a market in foreign exchange, extended short and medium-term loans to entrepreneurs, rulers, noblemen, and the clergy, and invested in industrial and commercial ventures.

    Two of the largest banking houses in the early fourteenth century were those of the Bardi and the Peruzzi. Located in Florence, the leading banking center of this period, these banks handled extensive financiaI interests in key European centers. A more prominent bank, however was that of the Medici.

    Established in Florence, in 1397, the Medici bank grew both within and outside Italy; by the mid-fifteenth century it had branches in Rome, Venice, Milan, Pisa, Avignon, Bruges, London and Geneva. Each branch was separately capitalized, with the central partnership in Florence retaining the majority ownership stake and the local manager retaining the minority stake.

    However, based on performance, managers were compensated with a larger share in branch profits than was guarantied by their equity investment. Before any distribution of profits, it was a customary practice for managers to make due provisions for bad debts. Books were closed once a year and managers had to take them to Florence for a thorough audit.


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