If you’ve ever wondered how your ancestors got on without a monthly letter from the bank, then you may be surprised to find that banking, as a recognisable institution, has been available in Britain and Europe for many hundreds of years. The early bankers were very much under-the-counter, as lending with interest was considered to be sinful for Christians. This attitude gradually relaxed over time, as more and more bankers found ways to lend money, and get interest, without being condemned by the church.
In Medieval Europe, the earliest bankers were Jewish settlers, who were freely able to loan money. They would often lend to farmers or landowners on potential crops. They also began to lend money against future imports and exports. While these loans were looked down upon by the church, they provided an easy way for the farmers to stay in business during bad harvests. This was particularly important during later centuries, when crops began to fail on an ever-larger scale. The word bank actually has its origins in the Merchant trader’s Banca, or bench, where the lending was done. To become bankrupt, from the Italian for rotted bench, means to lose the merchant’s deposits.
Enter the Europeans
Other Europeans began to get into the act during the years of the Crusades. Travellers going to and from the middle east, either to fight or on pilgrimage to the Holy Land, needed money quickly. They were reluctant to carry large sums with them as they travelled, in case they were robbed. The Templars in particular acted as bankers to the leading nobles on conquests. They would take money in the local currency of that Templar land, and then provide a note to the depositor which would allow them to draw at the money at any other Templar site.
By the end of the 12th century, European bankers were firmly settled. They had tried to evade the old rules concerning usury by trying to offer money without interest, but asking that insurance be taken out on the money (rather like current Payment Protection Insurance today). As the power of the banks grew, so they were allowed to offer loans with interest in things which were ‘not consumable’.
By far the richest bankers lived in Italy. The Medici started running a bank at the end of the 14th century, and this lead to their enormous wealth and power until that bank’s collapse in the late fifteenth century. The Banca Monte Dei Paschi of Siena, which still operates as a bank, was founded in 1472. Sometimes goods taken in pawned items were used as collateral on a loan interest. Papal banking became the largest source of income for many bankers, with some of the notable bankers, such as Giovanni di Bicci (of Medici) being appointed as Papal bankers.
From this basis, Banking in Europe received a firm foundation, and by the time that the Renaissance started in the fifteenth century, many Kings and Dukes had taken out large loans from Italian Bankers. This lending society both strengthened the banks, and caused rulers to tax officials and even sell off land and titles in order to repay their debts.