Question

In: Finance

1. Explain in detail the evolution of the banking industry and how initial practices of their...

1. Explain in detail the evolution of the banking industry and how initial practices of their founders still persist today

Instructions:

Answer the above two questions and make sure that:

1. You use your own words as any plagiarism will be captured by the software and rejected

2. You don’t share your answers with anyone as that might jeopardize your grade

3. You submit on the due as late submissions will not be entertained

Solutions

Expert Solution

Banking is old concept and initiated at the time when currencies were used .The need for banking arose when kingdom felt a system to deal with foreign goods and services.The banking system has evolved over a period of time.

Modern banking was established by Britishers especially Adam Smith. He advocated a view of "Invisible Hand" theory which encompasses around a self regulated economy. Then Alaxender Hamilton who was the head of treasury started a national bank which will accept members notebanks without any cuts in value. He also focused upon creation of national currency. But with the introduction of taxes, the banks could not survive and people lost money as well trust.

Then the era of merchant banking came and J.P Morgan emerged in late 1800. At the beginning of 1900 , A number of merchant bankers originated but Average American was finding it still difficult to get loans and then the panic of 1907 happened which triggered a widespread collapse in the shares of Banks which led to introduction of a central bank which is known as Federal Reserve.

Then American banks strived through two world wars and grew stronger and American people started to deposit their money back into banks and the system regained the confidence.

In the early 2000 , These commercial banks along with merchant banks started to have a lot of exposure in risky assets and derivatives which led to the collapse of real estate triggering Global recession which Led to FED acting through bailouts and mergers of banks.

FED started to intervene through placing restrictions over exposure in different assets so that the investors interest and depositors money must be protected at any cost. Today's Banking is highly effective and regulated and a ligh level of transparency is maintained through 24*7 online services.


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