Modern banking began when London goldsmiths started lending out more gold than they held
Modern commercial banking emerged in 17th-century London after goldsmiths realized they could earn interest by lending out gold that actually belonged to their depositors.
The foundations of modern fractional reserve banking were laid in 1640 when London merchants, wary of King Charles I after he seized deposits from the Royal Mint, began storing their gold in private goldsmiths' vaults. The goldsmiths issued receipts that soon began to circulate as a form of paper money. Crucially, these artisans noticed that only a small fraction of depositors ever withdrew their gold at the same time.
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