Banks and finance
finance was of critical importance for craft, since it mediated between savers and investors by moving purchasing power around in time and outer space in holy order to direct savings to their highest prize consumption, which in our period was normally long-distance barter. How much money was saved and invested – and at what price – was determined by supply and demand, as expressed by the prevail concern rate. This makes the analyze of finance in Catholic Europe more unmanageable, since the Church capped its perennial condemnation of taking sake on loans 20 in 1311/12, when the Council of Vienne forbade both the license of ‘ manifest ’ usurers by urban authorities and the enforcement of their contracts. 21 This did not rid the world of interest-bearing loans, but it did drive them underground. A second difficulty is that businesses called ‘ banks ’ were not the not the entirely entities performing bank functions. Quite a lot of lending went on without the engagement of any ‘ bank ’, and ‘ banks ’ played alone a very minor function in facilitating external payments. That was the state of merchant-bankers, whom we designate as such to emphasize that they were beginning and first merchants and that facilitating international payments was merely an accessory of their primary coil business .
‘ Banks ’ are very old. The earliest ones crop up in the very first surviving genoese notaries ’ registers ( 1154 ). originally, these Genoese ‘ bankers ’ were money-changers, whose name – bancherius – was derived from the bench ( bancum ) on which they sat while going about their business of exchanging foreign for domestic mint. 22 On the cusp of the thirteenth hundred the registers reveal that they had expanded their clientele horizons, accepting deposits on which they either paid interest 23 or credited a dowry of the bank ’ randomness profits. 24 They employed these deposits to grant loans at interest 25 and to invest in trade wind ( as dumb partners ). 26 A lawsuit before a genoese court in 1200 27 reveals more :
- A Genoese merchant generally had a bank account.
- Payments, initiated by oral instructions, were customarily executed across bankers’ books without use of ready money.
- It was not unusual for a merchant to overdraw his account (with the permission of his banker).
- Bankers had discovered the fractional reserve principle, whereby they only had to retain a certain portion of their deposits for day-to-day payments and could invest the remainder.
- Payments from one merchant to another did not require that they be clients of the same banker, since all the bankers in town had accounts with one another and could clear debits and credits without resorting to cash payments.
such lodge and transfer banks sprang up around the Mediterranean basin in the course of the thirteenth hundred – Florence 1211, Bologna 1245, Venice 1274, Barcelona and Valencia 1284, Palma de Majorca 1288, Montpellier 1293, Perpignan 1300, Lerida before 1301 – and curtly thereafter on the other side of the Alps ( Lille 1294, Bruges 1300 ). 28 notice that most these cities were maritime ports, and all were connected to trade routes. At around the lapp time, ‘ exchange booths ’ ( Wechselstuben ) arose in Germany ( Nuremberg and Nördlingen 1219, Cologne 1341, Speyer 1346, Basel and Strasbourg c .1350, Regensburg 1377 ), which fulfilled the same functions on the circuits along and to the east of the Rhine. 29 With two exceptions, 30 these deposit and transfer banks were rigorously local in setting .
The dates and places given only mark the first unequivocal attest that a bank was in operation, not the founding date of that institution, a lot less the date of beginning of deposit in that town. In some cases ( Venice, Florence ) indirect evidence points to the fact that deposit was, indeed, much older. 31 however, we are entirely at the mercifulness of our sources, and consequently of the vagaries of survival of documents. It was far more common to engage the services of a notary to record a contract in Italy than it was north of the Alps, and notaries ’ registers have survived in greater numbers there, not least because the courts treated the entries in those registers as prima-facie evidence of transactions. 32 By bluff gamble, a number of early notaries ’ registers survive in Genoa ( and, to a lesser degree, in Lucca and Venice ), 33 sol that we are far better informed about early bank there than, say, in Florence, where the notarial record merely begins around 1300, by which time entries in merchants ’ and bankers ’ ledgers had attained evidential measure, 34 sol that the surviving notaries ’ registers tell us very short about deposit .
Informal banks
formally constituted deposit and transfer banks were, however, only one separate of a much larger picture. In fact, having a bank history was not vitamin a common as one might think. No more than one in thirty to thirty-five people had one in chivalric Bruges 35 or Venice, 36 which works out to no more than one in seven to ten heads of households. however, many depository financial institution accounts in Bruges were irregular and existed entirely for a few days, 37 so that the frequency of bank account holding was in fact much lower. furthermore, wholly groups opted out of the bank system, for example the Hanseatic merchants who frequented Bruges in large numbers and were flush with money, but are entirely to be found in disappointingly small numbers in the account books of late fourteenth-century Bruges bankers. 38 Are we, then, forced to conclude with von Stromer that the Hanse, ‘ having no deposit arrangement ’, was primitive and backward ? 39 In fact, cozy bank was credibly more significant – at least in terms of assets – than conventional bank, even in the most highly evolve european economies. Indisputably, the informal bank sector fulfilled bank functions – accepting deposits ( with or without interest ), extending credit and facilitating local payments – precisely as the ball sector did. In listing these fiscal services roughly in ascending arrange of importance, we must bear in mind that the testify is so scatter that we can not begin to estimate the volume of commercial enterprise done or to generalize confidently from the known examples. ultimately, we must bear in mind that the categories are not watertight. After all, evening formally established banks were anything but antipathetic to loan funds on a pledge, thus functioning efficaciously as pawnshops, and quite by and large people who provided fiscal services were opportunists, out to make a buck any way they could .
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Tradesmen extended credit to their customers in Bruges
40
and Florence
41
to enable them to make purchases. This is also likely to have been the case with John Thorpe, a York shopkeeper dealing in cloth, ironmongery, grocery and haberdashery, who died in 1435 with accounts receivable averaging 12s 3d (median 3s 2d), while his accounts payable were an order of magnitude greater (average £10; median 17s 4d).
42 -
Larger private loans were granted by bond in Bruges
43
and York
44
or by notarial contract in Florence.
45 -
In Florence, tradesmen allowed customers to overdraw their trade accounts and even granted them cash loans.
46 -
Again in Florence, customers with a credit balance with one tradesman used it to offset debts owed to another by book transfer without recourse to any bank. Fifteenth-century Hanseatic merchants in London transferred bonds to cover debts payable, although this was by no means as simple as it was in Florence.
47 -
In Bruges and Florence pawnbrokers were licensed, regulated and taxed by the urban authorities from 1350 onwards.
48
They were financially redoubtable, attracting considerable resources by accepting deposits at interest and selling shares in their pawnshops (Bruges only). Furthermore, they held current accounts with the bankers (Florence) or exchangers (Bruges), which suggests a complexity and volume of business not likely to have been characteristic of a petty lender. Finally, wherever we have their account books, they prove to have granted loans, secured by pledges, at a level ‘far above the level of petty distress loans to the desperately poor’,
49
counting noble rulers and substantial Hanseatic merchants among their clients. Even then, their bread-and-butter business seems to have been providing bridging loans for artisans short of liquidity who had to put food on the table every day and pay their workers’ weekly wages but were only paid on completion of the job.
Formal and informal banking: Liaisons secrètes
It is clear that a phone number of institutions not formally constituted as banks were, in fact, fulfilling bank functions. indeed, pawnbrokers seem to have been encroaching on the banks, offering fiscal services such as matter to on deposits and current accounts. How did the banks manage to survive ? Well, the answer is : in most cases, they didn ’ deoxythymidine monophosphate. In 1584, Doge Tomasso Contarini lamented that of the 103 banks founded since the one-twelfth hundred, 96 had failed, leaving only 7 survivors. 50 union of the Alps, exchanger bankers failed in boastfully numbers between 1390 and 1400. 51 Banks may have failed, but banking went from strength to lastingness, as Robert Lopez, echoing Schumpeter, was fond of remarking. But that is lone to push the problem onto another grade : How did formally constituted deposit survive ? What was its edge in the market ?
The all-important advantage of formally constituted depository and transfer banks was their ability to offer clear facilities, maintaining clearing accounts with one another which allowed book transfer of funds between two parties even if they were not clients of the lapp deposit, since the banks would credit and debit their authorize accounts with one another consequently. 52 Since Bruges pawnbrokers and hostellers ( who provided fiscal services to their guests, specially to Hanseatic merchants ) 53 had accounts with the major exchanger bankers, but not with one another, all payments in town ultimately had to run across the bankers ’ books ( if one did not want to pay in cash ). This created ‘ a seamless system of book transfers across both the hostel and the commute ’. 54 Just how crucial these clearing facilities were may be judged from the complete chaos which ensued when the Bruges magistrate forbade requital by book transmit and mandated cash payments for some ( but not all ) debts in 1399. 55 sol in Bruges, the informal banks were hooked up to the fiscal system through the formally constituted down payment and transfer banks run by the exchangers. How characteristic this was of Europe as a hale in our period is difficult to say. however, there are indications that formally constituted banks were the linchpin of the fiscal system elsewhere. Pawnbrokers in Leuven and Antwerp seem to have been just as pendent upon formally establish banks as were their counterparts in Bruges. 56 In Venice banks were central to the payments arrangement : both Jewish and Christian pawnbrokers maintained accounts with the Rialto bankers and venetian banks on the Terraferma cleared debits and credits among themselves via those banks, quite than doing thus locally. 57 There is, however, one more indication that the deposit and transfer banks were, about everywhere, the anchor of the fiscal system, namely that they handled the local payments associated with international transfers of money by merchant bankers from Italy, Barcelona and South Germany, and it is to them we must immediately turn .
Bills of exchange
The beginnings of cashless international payments can be traced to a specific problem italian merchants faced in the one-twelfth hundred. Lucchese merchants traded silk fabric, woven in Lucca from silk imported via Genoa, for flemish woollens at the fairs of Champagne, which they transported to Tuscany and sold there. At both ends of the tune, merchants either had credit balances piling up which they wanted to remit or need of funds to borrow in decree to invest in goods. Since transporting coins from one place to another was expensive, slow and dangerous, the Italians invented beginning the notarial musical instrument ex causa cambii in the twelfth hundred and then its successor, the poster of exchange, 58 on the cusp of the fourteenth century, in order to remit excess funds from one place to another, that is to transfer purchasing might in space. This may look like a straight lend, since one party entrusted funds to a counterparty in exchange for a written promise of repayment. however, there were two all-important differences : the money was advanced in one currentness but refund in another, and the money was advanced in one place and refund far away. For purposes of illustration, let us imagine a bill drawn in Bruges and collectible in Barcelona ( Figure 3.1 ) .
A charge of exchange was an inner ship’s company document, in which a taker ( whom we imagine hera to have required ready cash in Bruges ) acknowledged payment in flemish écus in Bruges from a remitter ( who wanted to transfer cash to Barcelona ) and ordered a correspondent to pay the equivalent amount in Barcelonese currency in Barcelona. Money lone changed hands locally, while the bill, having first gear been handed over to the remitter in Bruges, was physically transported between Bruges and Barcelona and delivered to the payee designated in the bill. There the payee presented it to the payer. The bill itself was not account payable until it reached maturity, at the conclusion of the usance, which in the case of Barcelona was thirty days after batch. Bearing in mind that the correspondents in Bruges had cash in hand for two months before the Barcelona ramify had to pay out a penny, interest was charged on what was basically a loanword. however, the placard itself gives no reading any that interest was paid, specifying entirely the total of money received in Bruges and the exchange rate. This was by design, intended to allay ecclesiastical suspicions.
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number 3.1 Bills of commute
We alone know that interest played a function because the correspondents of the Datini company quoted exchange rates in Bruges and Barcelona in their regular letters. Francesco di Marco Datini of Prato was an crucial, but not overarch, merchant based in Florence. 59 His business archives ( 1386–1410 ) with some 500 ledgers and account books, 150,000 occupation letters and countless other documents, cast a brilliant light on the dealings and the far-flung connections of his factors in Barcelona, Valencia, Palma de Majorca, London and Bruges, and numerous early partners in ports from Bristol to Tana. Bowing to universal convention, the rates were expressed in both cities as a varying issue of shillings and pence Barcelonese for one flemish écu. These rates were not equal, as they were comprised of two components, principal and interest. The Bruges pace was about constantly higher, and this was typical of the fix leg of every central rate quote in the Middle Ages. Of course, no businessman knew whether he had gained or lost until he repatriated his funds ( Bruges → Barcelona → Bruges ), flush if the remitter normally had the advantage, garnering about 12–14 per cent per annum, regardless of whether the transaction was initiated in Bruges or Barcelona. But there was a gamble you might get burned, and it was precisely high enough to satisfy the requirements of the Church .
The outspread between the Bruges and Barcelona rates widened and narrowed in a fairly regular manner, tending to be highest in the fall and lowest in the early summer. 60 italian merchant bankers knew precisely what caused these recurring phenomenon, the low early summer matter to rates, for case, resulting from the arrival of cash-laden Hanseatic merchants. 61 not only did the merchant bankers have a astute idea of what to expect on the money marketplace, they besides knew how to make money out of a fluid position. The scheme was elementary enough : always lend money when concern rates are gamey and borrow it when they are broken, that is, be a remitter ( buying bills ) in the first example and a taker ( selling bills ) in the second gear. however, you could get burned, because unpredictable events could upset all calculations : war ( which required big withdrawals to pay soldiers ’ wages and outfit armies and navies ), devaluations ( which lowered the slant and daintiness of one currentness alone ) and even the second coming of a papal collector ( who alone dealt in cash ) all caused concern rates to skyrocket. 62 however, a cagey arbitrageur, who had a estimable sense of how the markets functioned and kept his eyes peeled and his ears open for newsworthiness, could make money hand over fist by exploiting the differences between exchange rates. This was easiest in Venice, where the peaks and troughs of the interest rate were normally quite predictable, peaking from July to September when the state galleys departed for the Levant, since exporters were desperate to get their hands on cash and besieged anyone with money to lend, offering to sell bills collectible in Alexandria, Beirut and other points east deoxyadenosine monophosphate well as in Bruges or London. The Florentines, who not entirely knew the score but besides ran the show in venetian deposit, made sure to concentrate their assets in Venice when demand for cook cash was at its highest, causing switch over and pastime rates to skyrocket. 63 The in truth apt could take advantage of complete chaos to turn a quick profit. When the Bruges magistrate, undoubtedly at the behest of the Duke of Burgundy, ruled at the end of September 1399 that henceforth all bills of change were to be paid in hard mint, regardless of whether they originated there or were drawn elsewhere on Bruges, concern rates rose dramatically and the markets were thrown into tumult. however, the Datini correspondents in Bruges came up with instructions to the Barcelona branch on how to deal with the site by 17 October, and reported a month late that change arbitrage was so profitable that the Catalans had abandoned trade wind wholly. 64 If the town fathers had to mandate cash payments on all bills of exchange, then they must have been settled by another method before that. And indeed they were : in Bruges vitamin a well as elsewhere in the global of italian business, book transfer across the ledgers of the deposition and transportation bankers was the universal method of settling claims arising from international payments by poster of exchange. Deposit and transfer banks were the indispensable link between the international and local finance markets .
transfer of funds by circular of exchange was possible fair about anywhere italian merchants put down commercial roots in Europe. The map shows the more outstanding centres of activity of these merchant bankers between the 1350 and 1450. however, the Muslim worldly concern was the end of the argumentation. Bills of exchange could be directed to the italian colonies in Constantinople and Tana, but beyond that western finance could not reach, since Islamic law frustrated the development of an instrument corresponding to the bill of exchange despite the sophistication of Muslim bankers. 65 Beyond the confines of the fondaco, business was rigorously on a cash or barter basis. 66
figure 3.2 Some big centres of italian bill trading ( c.1350–c.1450 )
figure 3.2 does seem to show one huge gap east of the Rhine, but this is more apparent than very. The outermost points on the map stigmatize alone the borders of italian charge deal. 67 South Germans, notably in Nuremberg and Augsburg, were surely acquainted with italian fiscal instruments by the fifteenth century and used them to big effect. 68 While Hanseatic merchants correct around the Baltic and the North Sea were surely conversant with bills of exchange from their origin, even if they called the transaction an overkop, 69 remember of it in terms of buy and selling claims to payment rather than the substitute of one currency for another, they did not use them much in the Baltic sphere until the mid-sixteenth hundred, chiefly because bills were expensive and slow there and bare hologram bills were absolutely sufficient. 70 evening so, it was constantly possible to link into the italian organization in Bruges and Cologne, or in the sixteenth hundred in Nuremberg or Augsburg. furthermore, when the bill of exchange became more common as a fiscal instrument in the Hanseatic world, it was the ports – Cologne and Danzig in the recently fifteenth hundred, followed by Hamburg in the one-sixteenth – which led the agitate. however, even the Hansards reached their limits : Russians dealt alone on a cash or barter basis .
once the Italians had perfected the poster of exchange, there was no goal of uses to which it could be put. A merchant was not limited to transferring surpluses from one place to another, he could draw a bill of exchange in one place ( an international bazaar, for example ) on an expect excess in another place, frankincense paying for goods with a placard, shipping those goods onward for sale and using the proceeds to pay off the bill when it matured. Johann Rosenkranz, a young merchant of Cologne, made use of this possibility in a straightforward manner in the 1430s, financing purchases of massive amounts of English fabric at the Antwerp fairs by drawing bills on his uncle ( and star ) Gerhard von dem Viehof in Cologne, who in turn sold the fabric and paid off Johann ’ sulfur bills when they matured. 71 At the same clock, Cologne merchants and London mercers built up a symbiotic relationship : cologne merchants, requiring funds to buy English fabric for dispatch to the Antwerp fairs, sold bills collectible there to the mercers, who had overindulgence funds which they wanted to remit to Antwerp in time for the fairs. The Cologners bought the fabric and shipped it to Antwerp, where they used the proceeds to settle the bills and remit any excess funds back to England, which they did by buying bills from the mercers, who used this ready money for purchases at the fairs, shipping their goods back to England, selling them and paying off the bills, whereupon the future bicycle began. 72 As the Cely letters ( 1472–88 ) picture, english staple merchants exporting wool to Calais and english merchants deal at the Antwerp fairs built up a alike motorbike. 73
Since a bill of exchange was, in substance, a lend, a merchant could borrow funds by selling bills. There were a phone number of methods of doing thus, all designed to cloak the fact that loans were being granted at interest. The simplest one was ‘dry’ exchange, 74 in which there was never any intention of paying out funds abroad. Either the payer overseas ‘ paid ’ ( by prior agreement between the remitter and the taker ) by drawing a second gear bill on the original taker, collectible to the remitter and calculated at the then current local anesthetic rate of switch over, or the payer merely refused to accept the outward bill, which threw it back on to the original taker. basically, the dry exchange was nothing more or less than a local loan, funds being advanced in one place in one currentness and refund in the same place and in the same currency. however, the rate of sake depended upon the stream change rates abroad at the clock time the outward charge matured and upon the length of meter both bills were under way. One popular kind of dry exchange was the cambium ad Venetias, 75 the commute on Venice. It took advantage of the fact that usance from Florence to Venice was five days after sight, assuming the bill took six days to arrive, but that usance from Venice to Florence was twenty days after go steady. So a dry change ad Venetias was a one month loanword, the re-exchange rate being calculated at the rate current in Venice when the outward bill matured. There were corresponding dry exchanges between Venice and Bruges ( a four-months loanword ) and Venice and London ( six-months lend ). Andrea Barbarigo, a venetian merchant, raised cash in Venice for making purchases in the Levant by drawing bills on London, Bruges and Geneva on dry exchange. 76
Public banks
From the begin of our period to the end, bankers were suspected ( not without some justice ) of concealing assets before they fled from their creditors and depositors, which governments – beginning with Aragon 1300/01 – attempted to prevent by promulgating draconian measures designed to prohibit deceitful accounting and ward off bankruptcy. 77
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The answer of the fifteenth and sixteenth centuries to the perceive dangers of private deposit and transfer banks was the populace savings bank, which was forbidden to engage in any sector of clientele deemed to be bad and required to fulfil the useful bank functions at no cost to the public. indeed, when the first public bank – the Taula de cambi of Barcelona – was founded in 1401, the authorities underscored the necessity of combating the bankers ’ ‘ greed ’. 78 All subsequent public banks – Genoa ( 1407/8 ), 79 Venice ( 1587, 1619 ), 80 Amsterdam ( 1609 ) 81 and elsewhere – were placed securely under civic or department of state supervision and rigorously limited to low-risk clientele sectors. They were permitted to accept deposits and help transportation payments across their books, in particular to settle claims arising from bills of exchange ( in Venice and Amsterdam this was mandated above a sealed level ), but they were normally required to offer these services free of charge. frequently, they were obliged to serve as a cashier for the oversee authority. Gradually, public banks began to act as a central clear bank, at first for regional payments ( in Barcelona and Genoa ) and then for international payments ( in Venice and Amsterdam ). On the other pass, any clientele endeavor which looked hazardous – private loans, overdrawing accounts, discount of bills of exchange and other credit instruments – was strictly prohibited. There was, to be sure, one fatal exception : the regulator himself, who gave himself license to plunder the populace banks ’ assets .
Since these manifold restrictions on their business activities left the populace banks about no room to earn profits, they lone survived thanks to oppressive legal requirements, promulgated by their regulators, such as
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the rule that certain assets had to be banked with them – in Barcelona, for instance, all assets of orphans had to be deposited with the Taula, in Genoa the Banca di San Giorgio was in charge of the exploitation of trading posts and colonies,
82 - that other transactions had to run across their books – in Venice, all bills of exchange had to be settled by book transfer in the Banco de Rialto from 1593 onwards, and from 1605 this rule was extended to all commercial payments over 100 ducats,
- by dint of state restriction of the activities of their competitors, sometimes to the point of outright prohibition (Amsterdam 1609).
Given this taut corset of regulation, it is not surprising that fiscal initiation did not see the clean of day in the populace sector. even the fabled Amsterdam Wisselbank ( ‘ rally bank ’, founded 1609 ) succeeded not by innovating itself, but by bundling disparate innovations which the private sector had brought forth ( e.g. the static bank guilder, multilateral external authorize ) .
