Banking

Banking makes a major contribution to mature economies but banking crises can do them great damage. Bank regulation is a compromise between the avoidance of banking crises and the preservation of banking efficiency. Following the crash of 2008, proposals for regulatory reform are under consideration, and there are prospects of major changes to the structure of the world's banking industry.

For definitions of the terms shown in italics in this article, see the glossary.

History

European banking had it its origins in the Italian city of Florence in the fourteenth century. The most successful of the Florentine bankers were the Medicis - a family that acquired respectability after generations of criminal activity. Among their innovations was the acceptance for a fee of "bills, of exchange" (which are the banking counterpart of promissary note or IOU), which enabled traders to defer payment for a purchase, and the offer to change money from one currency into another - also for a fee. The Florentine banking system was further developed in the seventeenth century by banks in London, Holland and Sweden.

Banking regulation

Basel I and Basel II recommendations

Responsibility for assessing risk was placed upon the banks and the credit agencies.