Many understand that banking activity was stifled in Europe during the Late Middle Ages by religious prohibitions on usury, which then referred to lending at any interest rate at all. However, this view is somewhat anachronistic, at least when applied to the end of the Middle Ages. By the time history arrived at the era of Machiavelli, Sir Thomas More, and The Merchant of Venice, sensitivity to usury was well on its way out. Indeed, the Catholic Church was by now tolerant of lending at interest and prominent clergy even encouraged the concept in certain contexts. Many were coming to see banking as a social good, one that could be used to help the poor, even if only by extracting them from the hold of less appreciated lenders. During the very end of the Late Middle Ages and the Renaissance, a new form of banking institution took shape; it was called the monti di pietà.
Usury
Lending was an unwelcome business in medieval Italy. Profiting from interest charged to borrowers was banned by the Catholic Church and socially impermissible. However, the stigma was restricted to lending within a religious community; it was taboo for Christians to lend at interest to fellow Christians but they could lend to Jews and Jews were similarly permitted to lend to Christians at interest.
That said, even in the Late Middle Ages, these restrictions were poorly enforced. It’s been said that in 14th century Florence, for example, there were more Christian moneylenders than Jewish ones, if there were any Jewish moneylenders in the city at all. Further, by the time of the Renaissance, opposition to usury was quickly dissipating, even in religious communities. The Bull Inter Multiplices, a religious decree issued in 1515 during the Fifth Lateran Council, called for alternative forms of lending to the poor to free them from supposedly predatory lenders. It also permitted the levying of some interest charge to sustain and benefit lenders.
The complex moral nuances of the issue, let alone economic considerations, discouraged a harder stance. Questions of the day included whether lending at interest was more acceptable for unsecured loans even if it was considered unjust for secured loans. There was also the issue of charging fees on missed payments; even most religious believed that was acceptable as long as the fees would not accrue more fees, that is, only missed principal payments should incur a charge.
The questions went on; there were also civic considerations. After all, wouldn’t lending to a government be providing a public good and what about the forced loans commonly resorted to by late medieval Italian city-states. Spiritual leaders also made exceptions for that, arguing that it was just to collect interest on a forced loan. Despite popular understanding of medieval finance, usury laws were not so restrictive as to suppress the formation of a complex financial system accessed by powerful states and poor denizens alike.
Pawnbrokers
For ordinary people, one of the most frequented late medieval financial institutions was the local pawnshop. Here pawnbrokers would make loans secured by specific possessions of the borrower. It was one of the venues in which Jewish lenders would do business with a Christian customer base. Even during the strictest application of usury rules, pawnbrokers operated legally.
In Italy though, they often had to pay a sizable fee for a license to conduct operations. A 1351 Florentine law licensed twenty-one pawnbrokers in exchange for 2,000 florins from each of them. While open even to the poor, pawnbrokers provided an expensive source of funds, offending many religious opponents of the lenders. One Italian pawnbroker, the Banca della Vacca, disclosed in a tax declaration that it earned 878 lire on 3,000 lire it lent, almost a 30% return.
Monti di pietà
Inspired critics of the traditional pawnbrokers included many clergy. It was the pawnbrokers that the Bull Inter Multiplices sought a replacement for. What the Church increasingly encouraged were charitable alternatives to private lenders and they found what they wanted in the monti di pietà.
Monte di Pietà literally translates into ‘mount of piety’ or less literally, ‘the accumulation of piety’. The monti, as they would be called in plural, were municipally chartered, charitable pawnshops aimed at ameliorating the condition of the poor. These sprouted up all over Italy in the Renaissance, but most notably in urban areas, in which they took up residence in prominent buildings near the city center. Some were already in existence by the end of the 15th century, the first having been formed in Perugia in 1462.
The creation of the first monti was approved by the Bull Inter Multiplices, but the earliest predated that 1515 decree by decades. Long before explicit papal approval, travelling religious leaders had already called for the establishment of monti di pietà wherever they went. In the late 15th century, preachers Bernardino da Feltre and Girolamo Savonarola called for the creation of monti di pietà as an alternative to usurious lenders. Some monti nonetheless used the 1515 pronouncement as cover to expand their operations. After all, some devout men had still opposed lending at interest, even by the monti, and despite the Church’s increasing support for the idea, monti were usually secular establishments, at least legally speaking.
Structure
The monti di pietà were funded with donations, sometimes collected by the Church, and from state aid. Even Lorenzo de Medici of the famous banking family, who was not enthusiastic about the idea of competition, offered a token amount of money to establish a monti di pietà in Florence. However, records from the monti suggest substantial support came from the middle classes and ordinary people, though donors included governments and guilds as well.
Some funding also came in the form of deposits left with the monti, but which could be withdrawn on demand by the depositor. This was an early instance of deposit banking but the circumstances of these deposits, which paid little to no interest, were sometimes peculiar. In Florence and Rome, some deposits were the result of legal cases where guilty defendants were required to leave money with the monti as part of their penalty. This was an example of state support for the monti which often fell short of direct financial subsidies.
With the funds it raised, the monti funded loans secured by the possessions of its poor clients. A typical loan could be up to eighteen months in term and interest charged was low, usually 5% and rarely above 10%. A borrower might expect to pay one and a half denari per lira per month, this would amount to a 7.5% interest rate in the system of Italian pre-decimal coinage where there were 240 denari per lira. To avoid losses, the list of eligible collateral was limited and assessors attempted to ascertain that the property truly belonged to the borrower. As a further safeguard, loan amounts and the frequency of new loans per borrower were limited and the most favored collateral were items with sentimental value.
Regarding its organizational structure, a typical monte di pietà had paid staff overseen by patrician volunteers. The latter were often appointed by the local government for a certain term of office. The staff recorded transactions on ledgers and the monti employed accountants when this task exceeded the capabilities and expertise of its overseers. The monti employed advanced accounting for the time, including the use of double-entry bookkeeping. To ensure their lawfulness, staff and overseers may in cases have been required to seek a guarantor to cover any indemnity should they be found guilty of wrongful behavior, such as embezzling funds from the organization.
This new form of charitable pawnbroker became most numerous in central and northern Italy but also spread to the south. By the time the Bull Inter Multiplices was issued, there were already over 120 in operation. Within a century of the establishment of the first monte in Perugia, there were over two hundred in Italy and six hundred by the end of the 17th century. They would spread all over the rest of Europe and even to Latin America.
Banking Legacy
The Bull Inter Multiplices enabled early monti to engage in activities more similar to that of a modern bank. Many began to accept deposits from a wide array of customers, including the Church, the state, the wealthy, and commoners. They arguably interacted with a broader segment of society than any other financial organization of their day and for that reason look surprisingly modern. This breadth makes the monti a valuable historical resource for those studying Renaissance Italy especially because so many of their records survive. This includes almost all of the ledgers of Florence’s monte di pietà.
As institutional lenders, the monti stood in time between the individual moneylender, operating at the edge of the law and social acceptance, and the mainstream services of a modern bank. There are differences however; not all monti accepted deposits as many refused to accept the prospect of sudden withdrawals. In any case, even those that did accept deposits did not necessarily pay interest on them. This was not among their primary functions.
They were also still medieval organizations in their intent, established without seeking profit but rather as a respectable alternative to less appreciated lenders. The monti had a radically different source of political and religious support than modern banks. Nonetheless, they are some of the earliest banking organizations developed and some survived to today, including the Banca Monte dei Paschi di Siena, founded in 1472 and still in business as the oldest bank in the world in operation.
Lesson
As deposit taking institutional lenders, the monti di pietà were ahead of their time. Though they were unlike modern banks, especially in their mission and source of support, they nonetheless reveal that banking at the end of the Late Middle Ages, at least in Italy, was more advanced and widespread than is commonly understood. The monti were distant precursors to the working-class savings banks increasingly common in 19th century Europe, at least in the classes they aimed at serving. However, the monti were not institutions peculiar to the 15th and 16th centuries and they were never completely replaced. Many survived to today in some form or another.
More from the Tontine Coffee-House
Learn about other innovations in Italian finance, including how the Medici got around usury restrictions to extend credit. Also read about Genoa’s Banco di San Giorgio and the old financial firms of Florence.
Further Reading
1. Gatto, Andrea. “Historical Roots of Microcredit and Usury: The Role of Monti di Pietà in Italy and in the Kingdom of Naples in XV-XX Centuries.” Journal of International Development, vol. 30, no. 5, 12 July 2018, pp. 911–914.
2. Jacobi, Lauren. The Architecture of Banking in Renaissance Italy: Constructing the Spaces of Money. Cambridge Univ. Press, 2019.
3. Menning, Carol Bresnahan. “The Montes Monte: The Early Supporters of Florences Monte Di Pieta.” Sixteenth Century Journal, vol. 23, no. 4, 1992, pp. 661–676.
4. Menning, Carol Bresnahan. Charity and State in Late Renaissance Italy: The Monte Di Pietà of Florence. Cornell Univ. Press, 1993.
Ken Romanowski
Joan Crist