A narration of banks, economic freedom and liberal democracy

Probably, the Knights Templar as bankers of the Crusaders and softeners of the Churchs view on taking interest, impressed early Italian bankers. In particular, the Medici family from Florence established good relations with the Church and wisely benefited from the economic conditions during the Renaissance.The Netherlands differed from prior leading areas in that banking developed here in tandem with economic growth in an open environment. Moreover, the skilful Dutch had access to financial markets and controlled them. The bank money of the Amsterdam Bank of Exchange ensured financial stabilityand fuelled economic activity. English banking started with the Goldsmiths, who deposited money from the public. The public trusted the Goldsmiths, who could therefore circulate money deposited with them.In this way, a fractional reserve system emerged. While the financial sector grew under open conditions, the Bank of England started as the first modern central bank. France experimented with paper money, but the experiment under the flamboyant Scot John Law became a failure. During the Napoleonic era,the Rothschilds appeared on the stage. Their banking empire was based on the network of five brothers in major European cities. The Rothschilds, with their strong family ties and circulating money across borders, were virtually untouchable. J. P. Morgan, with his strong relations, was the most notable banker in America's Gilded Age. Beyond this, he was successful also in heavy industries, being an outstanding businessman and a true leader. He even saved the U.S. economy from a crisis twice and co-moulded its central banking system. The Ottoman Bank was one of the oldest modern banks operating in adeveloping country. Being established with much foreign capital, it served as an independent central bank in Turkey after the Ottoman Empire. Throughout the 20th century, banking was largely organized country-wise. ‘National Champions’ such as Citibank dominated the scene, often benefiting fromrelationships in (semi-) colonies. Following the breakdown of the post World War II monetary system, thin lines between creative deal making and clear unethical tactics were crossed by unscrupulous bankers at times. In hindsight, economic freedom and liberal democracy were a critical factor in the developmentof banks as economic cornerstones. It is therefore essential that their entrepreneurial conditions are kept intact, whereas the Global Financial Crisis has shown that controls, internal norm setting and sector innovations may be helpful. Banks and their current partial replacers serve a public task.