Which revolution led to the concept of banking

Bhandari, Vibha. Available In. DOI: Current Special Offers. No Current Special Offers. Abstract The banking and financial services industry today stands at the crossroads between the traditional methods of business and the evolving modern methods of banking and providing financial services.

Technological advancement in the field of finance has led to a whole new form of doing business which is a radical departure from the conventional methods of doing business. The players in the field of banking and finance are facing challenges and competition from entities which never existed in the traditional sphere. The banking and financial industry is not only facing stiff competition from these new age players; it is also facing challenges to find fresh talent who can tide off this industry.

This chapter in its existing form shall present an overview of the banking and financial industry of today in the wake of Industrial Revolution 4. Chapter Preview. Figure 1. Such chain banking differs from branch banking in that the local board of directors is retained; that the bank is nominally run independently; but that savings in overhead, possible in branch banking, may be more difficult, or out of the question.

In law and in theory these banks are independent. In practice, of course, the board of directors becomes virtually the creature, if not the employee, of the holding company, and the bank is controlled as thoroughly as a branch bank, though somewhat more cumbersomely.

Moreover, there are some dangers in the situation. The chain of banks may include, and in fact frequently does include, state banks distributed over several states and national banks. The holding company itself is not subject to examination by either federal or state banking commissioners.

The banks themselves come under varying examination systems—some by one state, some by another, and a third group by the federal bank examiner. It becomes relatively easy to shift doubtful paper from one bank to another, until it will finally secure lodgment in the bank with the most lenient supervision. Growth of chain banking is so rapid that figures given at any time soon become out of date.

At this writing, some groups, owning about banks, are known, and if to these are added the city branch banks and branch banks existing under some state laws, there are to-day some banks that are not independent units in accordance with the theory of the law.

In practice, then, about one fourth of the banks in the United States have drifted away from the theory of the unit bank. It must be recognized that the chain bank has sprung up in accordance with an economic need, that in an age of centralizing industry it is an essential substitution for branch banking.

Many chain banks, under corporate control, have all the virtues inherent in sound banking business; they supplement and welcome thorough examination; they are desirous to promote and develop sound local banking practices; they supply the local management with excellent economic services, and they are able to supplement the local management by skillful shifting of deposits and credits, and by opening avenues for investments.

Along these lines, many holding companies are developing sound and profitable banking business, yet there is also the opportunity for the individual, holding controlling stock in several banks, to take advantage of the weakness of the system outlined above.

A change in the United States banking system seems imminent. It is not improbable that, if the prejudices against branch banking continue to dominate legislation, a system of banking under a few large holding companies will develop, which will be to all intents and purposes outside either the state or the federal banking system, which will supply the economic need of branch banking, and which will have none of its public safeguards.

In spite of the liberalizing McFadden Act, permitting restricted branch banking, there have been continued defections in the Reserve System since the passage of that act. Since February , over three hundred national banks, scattered among forty-one states, with assets of nearly three billion dollars, have been superseded by state banks.

To be sure, it would be unwise to advocate any catchpenny legislation merely to strengthen the national banking system. But when that system is out of step with the economic trend of the country; when it imposes a banking scheme made to handle modern business; when it compels by legal evasions reorganization of the banking scheme into groups that threaten to create a bootleg banking system—then the theory needs revision in the light of modern needs.

Opposition comes from the local bankers, many of them successful even under present progressively disadvantageous conditions, bankers who refuse to immolate themselves on the alter of progress. Pole, courageously disregarded the position taken by some of his predecessors, and, with some rather sound reservations, advocated a change in the federal law in regard to branch banking.

The account from the convention indicates that Mr. It is, therefore, to be presumed that proposed legislation along this line will find its way into Congress during the present session. As well as industry, banking also developed during the Industrial Revolution as the demands of entrepreneurs in industries like steam led to a vast expansion of the financial system.

There were three tiers of banks already in existence, but only in limited numbers. The first was the central Bank of England. Joint stock was declared illegal by the Bubble Act of , a reaction to the great losses of the collapse of the South Sea Bubble. A second tier was provided by less than thirty Private Banks, which were few in number but growing, and their main customer was merchants and industrialists. Finally, you had the county banks which operated in a local area, e.

By private banks were increasing in status and business, and some specialization was occurring geographically in London. This group of individuals whose investment helped spread the revolution were based mainly in the Midlands, a center for industrial growth.

Most were middle class and well educated, and there were a substantial number of entrepreneurs from non-conformist religions like the Quakers. They have been characterized as feeling they had to be challenged, had to organize and succeed, although they ranged in size from major captains of industry to small-scale players. Many were after money, self-improvement, and success, and many were able to buy into the landowning elite with their profits. The entrepreneurs were capitalists, financiers, works managers, merchants, and salesmen, although their role changed as the business developed and the nature of enterprise evolved.

The first half of the industrial revolution saw just one individual running the companies, but as time went on shareholders and joint stock companies emerged, and management had to change to cope with specialized positions. As the revolution grew and more opportunities presented themselves, there was a demand for more capital.

While technology costs were coming down, the infrastructure demands of large factories or canals and railways were high, and most industrial businesses needed funds to start up and get started. Entrepreneurs had several sources of finance. The domestic system, when it was still in operation, allowed for capital to be raised as it had no infrastructure costs and you could reduce or expand your workforce rapidly. Merchants provided some circulated capital, as did aristocrats, who had money from land and estates and were keen to make more money by assisting others.

They could provide land, capital, and infrastructure. Banks could provide short-term loans, but have been accused of holding the industry back by the legislation on liability and joint-stock. This brings me to my first policy implication: it falls to policy-makers to explain the process, and offer concrete evidence that it is unfolding as usual. We need to demonstrate that beyond the initial negatives are many positives, which are likely to dominate over time.

We need to acknowledge that real people and businesses are being disrupted and require policy support. And we need to point to the new and different jobs that are being created and explain that the new incomes are being spent in a wide array of traditional economic sectors. In other words, when mushrooms grow, they have yeast-like second-round effects as the growers spend their incomes. We can do this now because the narrative around technological disruption is not much different from the disruption associated with globalization, which has been with us for some 20 years.

But beyond explaining and documenting these complex dynamics, we also need to be attentive to potential pitfalls, such as those connected with the rise of so-called superstar firms, as we discussed earlier here.

These and other legitimate public policy concerns make it imperative that policy-makers reallocate some of the benefits of growth to cushion the impact on those who are directly affected by disruption, and help them adjust. All that being said, let us consider the possibility that we are living in a profound, global, positive expansion of aggregate supply—the product of digital disruption.

As with all major supply shocks in the past, it could take a long time for us to truly understand that it is happening. Still, we must conduct monetary policy in the meantime. We can start by measuring growth in the digital economy itself.

One rough proxy for the digital economy—the computer system design and related services sector—accounts for close to 2 per cent of Canadian gross domestic product today and has been growing by about 7. But that growth is likely to be only the tip of the iceberg—what we need to know is how it is spreading through other sectors and affecting aggregate supply.

For example, in the automobile industry, advances in computer technology are driving improvements in quality and represent significant value added from one model year to the next. Another example would be the financial services industry, where fintech is driving gains in productivity. Statistical agencies are hard at work on this. As discussed in the paper by Crouzet and Eberly, digitalization has led statistical agencies to underestimate investment, particularly in intangibles.

A consequence is that central banks are working with estimates of potential output today that may be revised up in the future. The recent historical revisions to US GDP data, which improved the measurement of investment in intangibles such as software, indicate that this could be important. A similar exercise in Canada has delivered a large upward revision in investment, and, hence, potential output, beginning in This makes one wonder about what revisions may be forthcoming for , and, of course, today.

The spread of digital technologies may also help explain the slow, measured growth of international trade.