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HISTORY OF BANKING
 
 


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Religion and banking: 12th - 13th century

The Christian prohibition on usury eventually provides an opportunity for bankers of another religion. European prosperity needs finance. The Jews, barred from most other forms of employment, supply this need. But their success, and their extreme visibility as a religious sect, brings dangers.

The same is true of another group, the knights Templar, who for a few years become bankers to the mighty. They too, an exclusive sect with private rituals, easily fall prey to rumour, suspicion and persecution (see Templars in Europe). The profitable business of banking transfers into the hands of more ordinary Christian folk - first among them the Lombards.
 








Bankers to Europe's kings: 13th - 14th century


During the 13th century bankers from north Italy, collectively known as Lombards, gradually replace the Jews in their traditional role as money-lenders to the rich and powerful. The business skills of the Italians are enhanced by their invention of double-entry book-keeping. Creative accountancy enables them to avoid the Christian sin of usury; interest on a loan is presented in the accounts either as a voluntary gift from the borrower or as a reward for the risk taken.

Siena and Lucca, Milan and Genoa all profit from the new trade. But Florence takes the lion's share.
 










Florence is well equippped for international finance thanks to its famous gold coin, the florin. First minted in 1252, the florin is widely recognized and trusted. It is the hard currency of its day.

By the early 14th century two families in the city, the Bardi and the Peruzzi, have grown immensely wealthy by offering financial services. They arrange for the collection and transfer of money due to great feudal powers, in particular the papacy. They facilitate trade by providing merchants with bills of exchange, by means of which money paid in by a debtor in one town can be paid out to a creditor presenting the bill somewhere else (a principle familiar now in the form of a cheque).
 







The ability of the Florentine bankers to fulfil this service is shown by the number of Bardi branches outside Italy. In the early 14th century the family has offices in Barcelona, Seville and Majorca, in Paris, Avignon, Nice and Marseilles, in London, Bruges, Constantinople, Rhodes, Cyprus and Jerusalem.

To add to Florence's sense of power, many of Europe's rulers are heavily in debt to the city's bankers. Therein, in the short term, lies the bankers' downfall.
 







In the 1340s Edward III of England is engaged in the expensive business of war with France, at the start of the Hundred Years' War. He is heavily in debt to Florence, having borrowed 600,000 gold florins from the Peruzzi and another 900,000 from the Bardi. In 1345 he defaults on his payments, reducing both Florentine houses to bankruptcy.

Florence as a great banking centre survives even this disaster. Half a century later great fortunes are again being made by the financiers of the city. Prominent among them in the 15th century are two families, the Pazzi and the Medici.
 






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