Passio tried to appropriate it was that Passio always refused to turn…

Passio tried to appropriate it was that Passio always refused to 

 

turn over the slave who knew of the deposit, for interrogation under torture. What stronger evidence exists in contracts with bankers? We do not use witnesses with them.10 

　Though we have no documentary evidence of the trial's verdict, it is certain that Passio was either convicted or arrived at a compromise with his accuser. In any case, it appears that afterward he behaved properly and again earned the trust of the city. His house was inherited by an old slave of his, Phormio, who successfully took over his business.

　 More interesting information on the activity of bankers in Greece comes from a forensic speech written by Demosthenes in favor of Phormio. Demosthenes indicates that, at the time of Passio's death, Passio had given fifty talents in loans still outstanding, and of that amount, "eleven talents came from bank deposits." Though it is unclear whether these were time or demand deposits, Demosthenes adds that the banker's profits were "insecure and came from the money of others." Demosthenes concludes that "among men who work with money, it is admirable for a person known as a hard worker to also be honest," because "credit belongs to everyone and is the most important business capital." In short, banking was based on depositors' trust, bankers' honesty, on the fact that bankers should always keep available to depositors money placed in demand deposits, and on the fact that money loaned to bankers for profit should be used as prudently and sensibly as possible. In any case, there are many indications that Greek bankers did not always follow these guidelines, and that they used for themselves money on demand deposit, as described by Isocrates in Trapezitica and as Demosthenes reports of other bankers (who went bankrupt as the result of this type of activity) in his speech in favor of Phormio. This is true of Aristolochus, who owned a field "he bought while owing money to many people," as well as of Sosynomus, Timodemus, and others who went bankrupt, and "when it was necessary to pay those to whom they owed money, they all suspended payments and surrendered their assets to creditors."11

　 Demosthenes wrote other speeches providing important information on banking in Greece. For example, in "Against Olympiodorus, for Damages,"12 he expressly states that a certain Como 

 

placed some money on demand deposit in the bank of Heraclides, and the money was spent on the burial and other ritual ceremonies and on the building of the funerary monument.

 

 　　In this case, the deceased made a demand deposit which was withdrawn by his heirs as soon as he died, to cover the costs of burial. Still more information on banking practices is offered in the speech "Against Timothy, for a Debt," in which Demosthenes affirms that

 

 bankers have the custom of making entries for the amounts they hand over, for the purpose of these funds, and for deposits people make, so that the amounts given out and those deposited are recorded for use when balancing the books.13

 

 This speech, delivered in 362 B.C., is the first to document that bankers made book entries of their clients' deposits and withdrawals of money.14 Demosthenes also explains how checking accounts worked. In this type of account, banks made payments to third parties, following depositors' instructions.15 As legal evidence in this specific case, Demosthenes 

adduced the bank books, demanded copies be made, and after showing them to Phrasierides, I allowed him to inspect the books and make note of the amount owed by this individual.16 

　Finally, Demosthenes finishes his speech by expressing his concern at how common bank failures were and the people's great indignation against bankers who went bankrupt. Demosthenes mistakenly attributes bank failures to men who

 

 in difficult situations request loans and believe that credit should be granted them based on their reputation; however, once they recover economically, they do not repay the money, but instead try to defraud.17 

 

We must interpret Demosthenes's comment within the context of the legal speech in which he presents his arguments. The purpose of the speech was precisely to sue Timothy for not returning a bank loan. It would be asking too much to expect Demosthenes to have mentioned that most bank failures occurred because bankers violated their obligation to safeguard demand deposits, and they used the money for themselves and put it into private business deals up to the point when, for some reason, the public lost trust in them and tried to withdraw their deposits, finding with great indignation that the money was not available. On various occasions research has suggested Greek bankers usually knew they should maintain a 100-percent reserve ratio on demand deposits. This would explain the lack of evidence of interest payments on these deposits, as well as the proven fact that in Athens banks were usually not considered sources of credit.18 Clients made deposits for reasons of safety and expected bankers to provide custody and safekeeping, along with the additional benefits of easily-documented cashier services and payments to third parties. Nevertheless, the fact that these were the basic principles of legitimate banking did not prevent a large group of bankers from yielding to the temptation to (quite profitably) appropriate deposits, a fraudulent activity which was relatively safe as long as people retained their trust in bankers, but in the long run it was destined to end in bankruptcy. Moreover, as we will illustrate with various historical examples, networks of fraudulent bankers operating, against general legal principles, with a fractional-reserve ratio bring about credit expansion19 unbacked by real savings, leading to artificial, inflationary economic booms, which finally revert in the shape of crises and economic recessions, in which banks inexorably tend to fail. Raymond Bogaert has mentioned the periodic crises affecting banking in ancient Greece, specifically the economic and financial recessions of 377–376 B.C. and 371 B.C., during which the banks of Timodemus, Sosynomus and Aristolochus (among others) failed. Though these recessions were triggered by the attack of Sparta and the victory of Thebes, they emerged following a clear process of inflationary expansion in which fraudulent banks played a central part.20 Records also reflect the serious banking crisis which took place in Ephesus following the revolt against Mithridates. This crisis motivated authorities to grant the banking industry its first express, historically-documented privilege, which established a ten-year deferment on the return of deposits.21 In any case, the bankers' fraudulent activity was extremely "profitable" as long as it was not discovered and banks did not fail. We know, for example, that the income of Passio reached 100 minas, or a talent and two-thirds. Professor Trigo Portela has estimated that this figure in kilograms of gold would be equivalent today to almost two million dollars a year. This does not seem an extremely large amount, though it was really quite spectacular, considering most people lived at mere subsistence level, ate only once a day and had a diet of cereals and vegetables. Upon his death, Passio's fortune amounted to sixty talents; given a constant value for gold, this would add up to nearly forty-four million dollars.22 BANKING IN THE HELLENISTIC WORLD The Hellenistic period, especially Ptolemaic Egypt, was a turning point in the history of banking because it marked the creation of the first government bank. The Ptolemies soon realized how profitable private banks were, and instead of monitoring and cracking down on bankers' fraudulent activities, decided to cash in on the overall situation by starting a government-run bank which would conduct business with the "prestige" of the state. Although there was never a true government monopoly on banking, and private banks (mostly run by Greeks) continued to operate, Egypt's prosperity secured a predominant role for the state bank. Rostovtzeff observes that the Ptolemaic bank also developed a sophisticated accounting system: Refined accounting, based on a well-defined professional terminology, replaced the rather primitive accounting of fourth-century Athens.23 Several archaeological studies show how widespread banking was during the Hellenistic period in Egypt. An incomplete document found in Tebtunis containing daily account records of a rural bank in the province of Heracleopolis shows the unexpectedly high number of villagers who, whether farmers or not, did business through banks and made payments out of their deposits and bank accounts. Relatively wealthy people were few, and most of the bank's customers were retailers and indigenous craftspeople, linen merchants, textile workers, tailors, silversmiths and a tinker. Also, debts were often paid in gold and raw silver, following the ancient Egyptian tradition. Grain, oil and cattle dealers, as well as a butcher and many innkeepers were documented as clients of the bank. The Ptolemaic government bank, private banks, and temples alike kept custody of different kinds of deposits. According to Rostovtzeff, bankers accepted both demand deposits and interest-paying time deposits. The latter were, in theory, invested in credit operations of various sorts—loans on collateral security, pledges, and mortgages, and a special very popular type—bottomry loans.24 Private banks kept custody of their clients' deposits while at the same time placing their own money in the government bank. The main innovation of Egyptian banking was centralization: the creation of a government central bank in Alexandria, with branches in the most important towns and cities, so that private banks, when available, played a secondary role in the country's economy. According to Rostovtzeff, this bank held custody of tax revenues and also took in private funds and deposits from ordinary clients, investing remaining funds in benefit of the state. Thus, it is almost certain that a fractional-reserve system was used and that the bank's huge profits were appropriated by the Ptolemies. Zeno's letters provide ample information on how banks received money from their clients and kept it on deposit. They also tell us that Apollonius, the director of the central bank in Alexandria, made personal deposits in different branches of the royal bank. All of these sources show how frequently individuals used the bank for making deposits as well as payments. In addition, due to their highly-developed accounting system, paying debts through banks became extremely convenient, as there was an official record of transactions—an important piece of evidence in case of litigation. The Hellenistic banking system outlived the Ptolemaic dynasty and was preserved during Roman rule with minor changes. In fact, Ptolemaic centralized banking had some influence on the Roman Empire: a curious fact is that Dio Cassius, in his well-known Maecenas speech, advocates the creation of a Roman government bank which would offer loans to everyone (especially


10Isocrates, “Sobre un asunto bancario,” p. 116.
11Demosthenes, Discursos privados I, Biblioteca Clásica Gredos (Madrid: Editorial Gredos, 1983), pp. 157–80. The passages from the text are found on pp. 162, 164 and 176, respectively, of the above edition. For information on the failure of Greek banks, see Edward E. Cohen, Athenian Economy and Society: A Banking Perspective (Princeton, N.J.: Princeton University Press, 1992), pp. 215–24. Nevertheless, Cohen does not seem to understand the way in which bank credit expansions caused the economic crises affecting the solvency of banks. 

12Demosthenes, Discursos privados II, Biblioteca Clásica Gredos (Madrid: Editorial Gredos, 1983), pp. 79–98. The passage mentioned in the main text is found on p. 86. 

13Ibid., pp. 99–120. The passage cited is found on p. 102. 

14G.J. Costouros, “Development of Banking and Related Book-Keeping Techniques in Ancient Greece,” International journal of Accounting 7, no. 2 (1973): 75–81. 

15Demosthenes, Discursos privados II, p. 119. 

16Ibid., p. 112. 

17Ibid., p. 120. 

18​Stephen C. Todd, in reference to Athenian banking, affirms that banks were not seen as obvious sources of credit . . . it is striking that out of hundreds of attested loans in the sources only eleven are borrowed from bankers; and there is indeed no evidence that a depositor could normally expect to receive interest from his bank. (S.C. Todd, The Shape of Athenian Law [Oxford: Clarendon Press, 1993], p. 251) Bogaert, for his part, confirms that bankers paid no interest on demand deposits and even charged a commission for their custody and safekeeping: Les dépôts de paiement pouvaient donc avoir différentes formes. Ce qu’ils ont en commun est l’absence d’intérêts. Dans aucun des cas précités nous n’en avons trouvé des traces. Il est même possible que certains banquiers aient demandé une commission pour la tenue de comptes de dépôt ou pour “l’exécution des mandats.” (Raymond Bogaert, Banques et banquiers dans les cités grecques [Leyden, Holland: A.W. Sijthoff, 1968], p. 336) Bogaert also mentions the absence of any indication that bankers in Athens maintained a certain fractional-reserve ratio (“Nous ne possédons malheureusement aucune indication concernant l’encaisse d’une banque antique,” p. 364), though we know that various bankers, including Pison, acted fraudulently and did not maintain a 100-percent reserve ratio. As a result, on many occasions they could not pay and went bankrupt. 19​The money supply at Athens can thus be seen to consist of bank liabilities (“deposits”) and cash in circulation. The amount of increase in the bank portion of this money supply will depend on the volume and velocity of bank loans, the percentage of these loan funds immediately or ultimately redeposited in the trapezai, and the time period and volatility of deposits. (Cohen, Athenian Economy and Society, p. 13)