Banking is at the base of our financial system. Financial meltdowns, like the Crash of 1929 and the 2008 subprime mortgage and credit crisis, make this abundantly clear. When banks fail to function properly, the economy follows, and like many elements of finance, banking has evolved over the centuries.

Mayer and Nathan Rothschild
Mayer Amschel Rothschild grew up in a Jewish ghetto in Germany. In the 1700s, Christian usury laws prevented many people from lending for a profit, leaving merchant banking as one of the few trades a Jewish individual could easily take up. Mayer did so, building a network by lending at low rates to politically important lords and princes. He used his connections to create a family fortune, training his sons in the practice of banking before sending them abroad. (For more, check out Top 3 Trends Affecting Private Wealth Management.)

With Mayer Rothschild's children spread across Europe, the Rothschild's became the first bank to transcend borders. His son Nathan took over the lead role in pioneering international finance. Using pigeons to communicate with his siblings, Nathan acted as a central bank for Europebrokering purchases for kings, rescuing national banks and funding infrastructure, like railroads, that would help start the industrial revolution.

Junius and J.P. Morgan
This father and son duo brought true finance to America. Junius Morgan helped George Peabody solidify America's ties with the capital markets in England. The English were the primary buyers of the state bonds being used to build up America. His son, J.P. Morgan, took over the business as the credit his father secured sent the nation into breakneck industrialization. J.P. oversaw the financial reorganization of industries from many competing interests to one or two large trusts with immense power and capital. This consolidation of power allowed America to burst ahead in production in the 20th century and propelled J.P. to the head of Wall Street. Until the creation of the Fed, Morgan and his syndicates were America's central banking system. (From robber baron to the hero of the Panic of 1907, this man helped shape Wall Street as we know it, see The Kingpin Of Wall Street: J.P. Morgan.)

Paul Warburg
J.P. Morgan's intervention in the Bank Panic of 1907 highlighted the need for a stronger banking system in America. Paul Warburg, a banker with Kuhn, Loeb, helped bring a modern central banking system to America. Warburg came to America from Germany, a nation long used to the concept of central banking. His writings and involvement in committees heavily influenced and encouraged the design of the Federal Reserve. Unfortunately, one of his more important points, the political neutrality of the Fed, was compromised when the president was given the exclusive power of picking the Fed's leaders. Warburg continued to support and work for the Fed until his death, but he refused to accept any position higher than vice-chairman. (Learn more in our Federal Reserve Tutorial.)

Amadeo P. Giannini
Before Amadeo Giannini, Wall Street banks were the picture of elitism. A regular person couldn't walk into the House of Morgan and open a bank account, any more than he could enter Buckingham palace and use the bedrooms. Giannini changed all this by making it his life's purpose to fight for the little guy. Giannini built his bank by soliciting depositors with advertisements and making all sizes of loans in his home state of California.

What would one day become the Bank of America was nearly derailed by Wall Street when Giannini retired. The board brought in a Wall Streeter to replace Giannini and the man turned raider, dismantling the banking network and selling it to friends back on Wall Street. Giannini came out of retirement and won a proxy battle to once again take over his bank. Once bitten, twice shy, Giannini never truly retired until his death in 1949. He will be remembered not only as one of the few non-Wall Streeters who took on The Street and won, but also as the man who began the democratization of banking. Perhaps the most lasting monument to his life's work is California's status as one of the world's largest economies – due in large part to financing and credit provided by Amadeo Giannini. (For more, check out our Banking Industry Handbook.)

Charles Merrill
Heir to the work that Giavanni started, Charles E. Merrill had already built a successful investment banking business from scratch and was in semi-retirement when the firm E.A. Pierce and Co. asked him to run their firm. Merrill agreed, provided that his name was added to the company's and that he be given firm control over the company's direction. He took the new opportunity to try out his ideas of "people's capitalism," a concept that he had spent his life building. (Interested in what it takes to survive in finance jobs, check out Making It Big On Wall Street.)

Merrill's original firm had been heavily involved in financing chain stores like Safeway, and Merrill wanted to take the lessons of chain stores, smaller margins but larger sales, to create a retail banking industry. Merrill saw two obstacles to his vision: lack of education and mistrust following the abuses leading to the 1929 Crash. Merrill attacked these problems head-on. He and his employees wrote hundred of pamphlets about investing and held seminars for everyday people. Merrill even set up free childcare at these seminars so both spouses could attend. His education drive was aimed at demystifying investing and the market for the general public.

Merrill also demystified the workings of his firm, publishing the "Ten Commandments" in a 1949 annual report. It was a public guarantee that the firm would conduct itself in a way that met the demands and dispelled the fears of its clients. The first commandment was that the interests of the customer always come first. The commandments seem obvious now – seven and eight have to do with disclosure of interest in offerings and advanced warning of the firm's selling of securities – but they were a revolution in how firms approached small client accounts in those days. Merrill died before he saw the resurgence of the individual investor and the benefits his policies had on the firm, but he is credited with both realizing and coining the phrase, "bringing Wall Street to Main Street."

A Work In Progress
The evolution of banking is far from over. Our journey started with the mechanics of banking and ended with the democratization of finance for everyone. It's an odd thought that 70 years ago most banks would simply refuse to do business with the small guy. Even in the last 100 years, there have been dramatic shifts from conservative values to speculation to heavy regulation and on and on like the pendulum of a clock. The best we can hope for is that more individuals like Merrill and Giannini continue to challenge and improve the system that we depend on so much. (For related readings, see The Greatest Investors.)

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