The Bank of Venice, founded in the twelfth century during the time that the island republic was at war with the Roman Empire, is spoken of as the first public bank. Originally it was not a bank in the modern sense, however, being simply an office for the transfer of the public debt. The government secured funds by means of forced loans levied upon wealthy citizens. Instead of issuing bonds against these loans, as governments do to-day, the amount of specie loaned was credited to each subscriber. These credits could not be withdrawn, but could be transferred from one to another on the books of the bank. No notes were issued or checks used, the entries on the bank register being evidence of payment. The Venetian traders early saw the advantage of this transfer system over that of handling the coin, and voluntarily deposited their specie in the bank and obtained bank credits. Not until 1587, however, did Venice practice the actual business of deposit banking by receiving foreign coins at their bullion value and issuing certificates promising to return bullion of the same value of standard weight and fineness.
1Conant: Principles of Money and Banking, Bk. II, p. 168. 2 Conant: History of Modern Banks of Issue, p. 24.
The Bank of Amsterdam was established in 1609 to meet the needs of the merchants of that city, which had become the center of the international trade of Europe, and to correct the disorders of private banking, especially those growing out of the accumulation of promiscuous and lightweight coins received in the extensive foreign trade of the Dutch.1 The Bank of Amsterdam accepted all kinds of specie on deposit, crediting the depositors with its real value in standard coin. These deposits could be withdrawn at will or transferred on the bank's books from one person to another. The credits given for these deposits of coin or bullion came to be known as "bank money" and commanded a premium over the debased and mutilated coins in circulation. In the seventeenth century the bank adopted a plan by which a depositor of specie received an equivalent credit of bank money on the books and a "recepisse," a kind of certificate of deposit, which entitled him to withdraw it within six months upon returning the bank money with which he was credited and paying one-eighth of one per cent interest. The depositors had the privilege of renewing the deposit indefinitely at the end of the six months' period, but failure to withdraw or renew forfeited the deposit to the bank. For generations this bank money constituted the basis of the large foreign exchange of Amsterdam. With the establishment of "giro" or transfer banks at Hamburg in 1619, and at Nuremberg in 1621, these written orders came to be used in much the same way as the modern check and were widely employed. These early transfer banks did not make loans or incur any liability beyond the coin and bullion deposits.
1 Dunbar: Theory and History of Bunking, Ch. VII,
The Bank of Amsterdam was not subject to official examination, but its credit was never questioned. Toward the close of the eighteenth century it became known that the bank had not lived up to its obligations to keep in its vaults an amount of coin and bullion equal to the "bank money" outstanding. The small committee of city "fathers" responsible for its administration made no report of its affairs, but in 1790 it leaked out that for years favored depositors had been permitted to overdraw their accounts and that enormous loans of specie had been made to the city and to the Dutch East India Company. These disclosures destroyed confidence, the premium on bank-money disappeared, and the bank became insolvent. It was finally closed by royal decree in 1819. The first bank of issue was the Bank of Sweden, founded as a private institution in 1656, but converted into a public bank in 1668.