In 17th century London goldsmiths began to accept deposits from merchants for safe-keeping of money and other precious metals. Prior to that, in ancient Rome and Greece, this practice was also prevalent.
However, banking in true sense of the term appeared in Italy in 1157 when the Bank of Venice came into existence.
According to Crowther, merchant banker forms the earliest stage in the evolution of modern banking. Then London goldsmiths began to deal with this business. Goldsmiths became the custodians of money and other valuables and later on began charging for this safe-keeping service. Then the goldsmiths became the money-lenders.
By virtue of his experience he realised the daily deposits and daily withdrawals. Keeping a part of the deposits as reserves, the goldsmiths loaned out the rest amount on interest. Goldsmiths turned into a banker.
However, some people believed that the German word ‘Bank’ means a heap or pile while others believed that the Italian word ‘Bank’ means bench. But Crowther says that modern banking has three ancestors: (a) the merchant, (b) the goldsmiths and (c) money-lender.
We know that goldsmiths in course of time turned into money-lenders. Keeping a part of the deposits, goldsmiths loaned out the rest on interest. Virtually, he became a banker like receiving deposits and advancing loans.
Crowther says that, “the bank as a provider of circulating money is almost entirely an English invention.”