From Ledgers to Algorithms: The Evolution of Trust and Function in Commercial Banking

Abstract

Few institutions are more important to economic development than the commercial bank; and yet its actual form and function are continually changing. This paper describes the history of the latter-day commercial bank. It traces the evolution of the commercial bank into a technological and algorithmic entity in the 21st century, analyzing its dual character: a facilitator of commerce and a potential instrument of risk. The primary theme in the history of the commercial bank is the technical and institutional means of creating and organizing “trust.” The study examines this development at the various stages encompassing the invention of double-entry bookkeeping, and state-chartered public banks (the Bank of England, etc.), the globalization of money and finance, and the latter placing risk management in the hands of banks (under the Basel Accords). Finally, the paper examines today’s turning point, wherein the competitive forces of Financial Technology (Fintech) and its “weaponization” by warring nation states (especially the UK and USA), require that the banks define themselves ironically as brand-names who can be trusted.