History of Banking: From the Fall of Rome to the Renaissance

The fall of Rome brought the destruction of the institution of banks, which were revived during the Crusades. In turn, papal bankers appeared on the arena of history, providing various banking services. During the Middle Ages, the charging of interest was considered immoral and such practices were therefore prohibited. The Church opposed usury as early as 325, as stated by Pope Leo I at the Council of Nicea. The Church’s path on this issue was followed by Charlemagne who banned lay people from engaging in usury in 789.

Italy played a key role in the history of banking. As early as 1157, the first bank, named Monte, was established, and shortly afterwards a second bank, Banco di Giro, appeared. The name “bank” comes from the Italian word “banco”, meaning a bench where money transactions took place. Banking services in Italy were provided by the Acciaiuoli, Bonacorsi and Salimberi families.

There were frequent bankruptcies at the time which were caused by the circulation of deposits based on the fractional reserve and the granting of credit . The Medici bank in the 15th century was involved in accepting deposits called “depositi discrezione”. These were loans from depositors to the bank with which the bank granted credit, providing interest to the creditors. As a result, the Medici bank collapsed as they lost liquidity due to the loss of a significant portion of bank reserves.

The massive bank failures necessitated the introduction of a law in Barcelona which dictated that the name of a banker who went bankrupt was to be announced at the Catalan markets and the bankrupt was to live on bread and water until he repaid the debt. Subsequently, the death penalty for fraud was introduced for bankers. This happened to Francesco Castello, among others, in 1360. In response to the financial crisis, the Barcelona authorities set up a government-owned Municipal Bank.

In Germany, a bank was established in Hamburg in 1189. The Bank of Nuremberg was also established in the 15th century to finance the activities of Emperor Maximilian. The Fugger family members became the bankers of Charles V, obtaining in exchange for loans, huge pledges in the form of mines and steelworks and pursuing creditors for tax arrears. The rulers’ policies also led to bank failures. In 1575, Philip II caused the bankruptcy of the banks of Italy by issuing a debt decree, and a third bankruptcy by the King of Spain caused the Fuggers to lose 3.25 million ducats.

Leave a Reply

Your email address will not be published. Required fields are marked *