A History of Banking
The Medici Bank
How the Medici family of Florence built a powerful bank in the 15th century using branches, double-entry bookkeeping and bills of exchange, and how it collapsed.
The Medici Bank was founded in Florence in 1397 by Giovanni di Bicci de’ Medici.
Innovations
- Branches in Rome, Venice, Geneva, Bruges, London and elsewhere, run as partnerships.
- Bills of exchange: documents for transferring money between cities, often also used to avoid Church bans on interest by building returns into exchange rates.
- Double-entry bookkeeping, recording debits and credits.
Papal banker
The Medici managed finances for the Pope, a major source of profit.
Power
- Their wealth supported politics in Florence and art of the Renaissance, funding artists like Michelangelo and Botticelli.
Decline
- Poor management, bad loans to rulers like England’s king, and weak branch controls.
- The bank collapsed in 1494.
Lesson
Innovations spread banking, but risky lending to rulers and weak controls caused failure.
The bill of exchange
A wool merchant in London pays a Medici branch, which issues a bill his partner can cash at the Medici branch in Florence.
Thinking medieval bankers couldn't charge interest
They often earned returns through exchange rates on bills.
Key takeaways
- The Medici Bank was founded in 1397.
- It used branches, bills of exchange and double-entry books.
- It banked for the Pope and funded Renaissance art.
- It collapsed in 1494.
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