Medieval Italy was home to a burgeoning banking system, even a century before the start of the Medici banking operation. This system was concentrated in the Tuscan cities of Siena, Lucca, and Florence but its reach was international. Tuscan bankers financed merchants conducting international trade before extending their services to kings and popes. These relationships brought legitimacy to the previously stigmatized profession. However, they also increased the hazards of banking. Medieval monarchs were volatile borrowers, and their confiscations and defaults ruined many bankers across these cities.
Siena
Some of the earliest success stories in Tuscan banking came from Siena where medieval banks extended their reach far beyond Tuscany. Merchants from Siena had been active at medieval fairs, the most notable of which were held in Champagne outside Paris, since the 1210s. It seems they were also active in banking by the 1220s. Banking and international trade were closely linked in medieval Europe. Rather than transport a large number of coins across countries, merchants would rather use a financial instrument, like a bill of exchange, to transfer money without physical movement of coins.
Specialized firms came to offer bills of exchange in one city that could be presented in another city for payment. Because it took time to travel between cities with these bills, they were usually issued with some term, ranging from a few days to several weeks, before which they could not be redeemed. Thus, the issuance of bills was both a foreign exchange and a borrowing transaction. Financial inventions like the bill of exchange allowed cross-border transactions to take place more easily.
Besides merchants, banks in Siena also offered banking services to the Papacy. Popes began collecting taxes from clergy in the early 13th century and it earned income and incurred expenses across several countries. Transferring large sums of money from across Western Europe to Rome was a service the Sienese merchant-bankers could offer, another application of the bills they were already providing merchants. The city’s bankers benefited from their proximity to Rome, their expertise, their capital, and their established payments infrastructure. The Pope received a financial partner to support its wars in Italy and the banks received a deposit base to manage for profit.
The most successful of the Sienese banks of the 13th century was the Gran Tavola (‘Great Table’). The name was perhaps a reference to the table or benches from which bankers transacted; indeed, this is also the origin of the word ‘bank’ itself. The Gran Tavola was established by Orlando Bonsignori and his brother Bonifacio, who was appointed the official banker to the Pope in 1252.
The Bonsignori bank arranged loans to the pope funded by syndicates of Italian merchants. Lending to popes and kings could elevate the prestige of the previously tainted lenders and this legitimacy attracted deposits, but international banking was still politically contentious work, even in peaceful times. During war, it could be impossible not to choose sides and the decision could prove costly either way.
The Sienese banks were at the mercy of the financial decisions of powerful actors not particularly concerned with the wellbeing of their lenders. Siena’s special role in medieval finance declined in the 1290s after the financially handicapped French king, Philip IV, confiscated the assets of Sienese merchants in France and Pope Boniface VIII began to favor Florentine banks over Sienese firms. The Gran Tavola was dissolved in 1298.
Lucca
Siena was not the only city home to a budding financial sector in medieval Tuscany. In Lucca, bankers congregated in front of the city’s cathedral on the Piazza San Martino. An oath pledged by the city’s money-changers even appears on the portico of the cathedral to this day. Perhaps the most well known of these Lucchese lenders was the Ricciardi bank, one of the largest of 13th century Italy. The firm was established in Lucca but also operated in England virtually from its founding where it marketed silk cloth from Lucca to English clients. The company also operated branches in Ireland and France and served the Church as well.
The Ricciardi became bankers to the English king and exported English wool to continental Europe. The firm’s lending to Edward I of England allowed the king to fund his army, triggering the ire of France’s Philip IV who moved against them, just a few years before he wreaked the fortunes of the Sienese Gran Tavola. The Ricciardi thus ran into trouble in their English and French operations and the situation worsened when their papal client was demanding the redemption of its deposits. The strain meant the firm was in distress by the 1290s and bankrupt in 1300.
Another Lucchese banking family were the Castracani. They began as money-changers no later than around 1250. From a table on the Piazza San Martino and from a nearby shop, the Castracani accepted deposits, made loans, and effected payments between account holders. Some deposits were redeemable on demand and some were time deposits carrying terms generally ranging from one month to one year. The Castracani lent this money. Loans tended to be short-term. In some cases, they were disguised as advance purchases of future agricultural produce, extending credit today against a future deliverable, in order to charge usurious rates of interest with less official scrutiny.
Like the larger banks, that of the Castracani served the middle and upper classes with respect to its deposits but even artisans and peasants used the bank’s services and made-up many of its borrowers. The Castracani also financed trade using bills of exchange as the Sienese banks had and it was likely one of the largest Lucchese firms in this business. A certain Buiamonte Turchi served as the Castracani’s correspondent at the Champagne fairs.
A history of the Castracani can be pieced together from surviving notarized contracts. We know that the core business was controlled by the Castracani family, but individual members formed partnerships with outsiders to implement certain ventures. Including all these operations, the Castracani did more than borrow and lend money. They trafficked in goods, such as spices, across great distances and it was these sorts of ventures that often necessitated partnership with others. The family also invested their earnings in urban and rural properties and in mining.
As with the other Sienese and Lucchese banks, the end came around the end of the century. The Castracani were exiled from Lucca in 1300. Infighting between the Guelfs, a political faction in late medieval Italy whose internal squabbles also afflicted the poet Dante Alighieri, saw them and other prominent families leave the city.
Florence
Medieval banking did not disappear from Tuscany altogether. In Florence, bankers continued to gather at the city’s Mercato Vecchio, the Mercato Nuovo, and the Orsanmichele Church. During the late 13th and early 14th centuries, the Papacy took its business to the Florentine banks. The city had come under the control of the Black Guelfs, a faction who favored papal power in Italy, whereas at the time, Siena belonged to a rival faction, the Ghibellines. The preeminent banks in Florence in this period, well before the Medici came along, were the Bardi, Peruzzi, and Acciaiuoli. Like other Tuscan banking organizations, they engaged in both trade and banking and employed dozens of partners and employees.
The similarities did not end there. The Florentine banks, like those of Siena, also discovered the dangers of lending to kings. Of course, they knew not to trust Philip IV of France, who had ruined the Sienese. So, they instead lent to the English monarchs, who in return gave the Florentine banking houses preferential access to the wool trade, a common concession given to that kingdom’s lenders. This allowed Florence to displace Flanders as the center of the wool-textile industry in Europe.
The Florentine banks like the Bardi and Peruzzi may have also been attracted by higher interest rates in England. The returns on lending to English monarchs, around 15% per year, were higher than those that could be earned lending to the Italian city-states, which could borrow at the lowest rates in Europe. By now, the Italian bankers were lending not to Edward I but to his grandson Edward III, who borrowed from the Bardi and Peruzzi to fund a war for control of the French throne. After a decade of borrowing, he defaulted on his debts.
By the middle of the 14th century, war, taxation, poor harvests, and politics took their toll on the companies. The Bardi, Peruzzi, and other banks failed in the 1340s. Indeed, all of the major Florentine banks, and some other trading companies, would be closed by 1346. In 1347, Florence was suffering a major depression so severe that tens of thousands of residents were relying on the dole to stay fed. The very next year, the plague reached the city. Only at the end of the century would Florentine banking recover, led this time by the Medici.
Lesson
The success of medieval Italian banking groups is well studied but it is not as widely known as the latter achievements of the Medici banking family. Like the Medici, the older banks of the Bonsignori, Ricciardi, Bardi, and others got their start financing trade, often between Tuscany and medieval fairs further north. This business was enhanced by the banks’ transactions with kings and popes which conferred legitimacy, deposits, and special concessions on the firms. However, medieval banking was full of perils and lending to rulers only increased the already-high political risks banks were exposed to. These eventually led to their ruin.
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Further Reading
1. Blomquist, Thomas W. “The Castracani Family of Thirteenth-Century Lucca.” Speculum, vol. 46, no. 3, July 1971, pp. 459–476.
2. Campbell, Bruce M. S. The Great Transition: Climate, Disease and Society in the Late-Medieval World. Cambridge University Press, 2016.
3. Kleinhenz, Christopher. “Banks and Banking.” Medieval Italy: An Encyclopedia, Routledge, 2004, pp. 89–92.
4. Padgett, John F. “The Emergence of Corporate Merchant-Banks in Dugento Tuscany.” The Emergence of Organizations and Markets, 2012.
