Banking Before Banks Had Rules

This article records tradition as it has been passed down and reported. Its sources are not yet part of the atlas's verified catalogue.

Raymond de Roover's landmark study of the Medici Bank shows an institution solving problems no regulator had yet named. The Catholic Church's prohibition on usury, charging interest on a loan outright, meant the Bank could not simply lend money at a stated rate the way a modern bank does. Its bankers instead relied heavily on the bill of exchange, a financial instrument that let the Bank profit from the exchange-rate difference between currencies across its branches in Florence, Rome, Venice, Bruges, London and elsewhere, structuring what was economically a loan as a currency transaction the Church could not easily condemn. The Medici also refined double-entry bookkeeping practices already emerging in Italian commerce, keeping separate ledgers for each branch, organized as semi-independent partnerships under the Florence headquarters rather than a single centralized firm, which let the Bank contain a branch failure rather than letting it sink the whole enterprise, at least in principle. Its most politically valuable client was the Papacy itself: the Bank served as the Pope's chief banker for decades, managing Church revenue across Europe, a relationship that brought enormous profit and prestige and, eventually, enormous risk when a client that powerful could not simply be sued for a bad debt.