So diversified did it become that its Bruges branch, in today's Belgium, even helped to recruit choirboys.īanking and trade went together. Later, it secured a near-monopoly in the still more profitable trade in alum, vital to the textile industry. Soon after it was set up, it got into wool and (more profitably) silk. Though the Medici bank's experience was not much better, its partners felt that shouldering such risks was necessary to get other business. The sovereign risk of the day was high: both the Bardi and the Peruzzi houses were felled when England's King Edward III defaulted. Most of the Medici bank's lending was to royalty, to finance military campaigns or lavish princely lifestyles. On one occasion, the records show, the bank got the elevation of a cleric to a bishopric delayed until his father, a cardinal (yes), had repaid his own and his son's debts. Its connections with Rome and the Vatican's reliance on it gave the bank immense clout both with other customers and with the church itself. Until 1434, more than half of the bank's revenues came from its Rome “branch” (which followed the pope around on his travels). So successful was the bank that under Cosimo de' Medici, who ruled it with an iron rod, the Medici were for a long while put in charge of papal finances. And it used this network to great effect for what became its biggest client: the Vatican, to which it brought the tithes and taxes due to Rome from other branches of the church commercial in Europe. Though the scale of its network was not new-the Bardi and the Peruzzi, the great Italian banking houses of the early 14th century, had more branches and probably more power-the Medici bank was the most international of its time. At its widest, it had nine branches outside Florence. This seems to have been a Medici innovation. Each of its branches was a partnership, under (until 1455) a central holding company. The bank, like any modern one, held deposits and made loans, dealt in bills of exchange, changed money and conducted business abroad. But they used the techniques newly developed in Italy, or still being so, to their fullest advantage: things like double-entry book-keeping, bills of exchange and book transfers. The Medici were not great innovators in their methods. And, happily, the bank kept good records. Until its declining days, the power it wielded within Europe foreshadowed that wielded by the Rothschilds 400 years later.
Set up in 1397 by Giovanni di Bicci de' Medici, who had managed a bank in Rome before moving to Florence, the Medici bank lasted until 1494, when it collapsed, a victim of depression, internal strife and French aggression.
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