Italian bank, 15th century
The Medici Bank (Italian: "Banco dei Medici" ) was a financial institution created by the Medici family in Italy during the 15th century (1397–1494). It was the largest and most respected bank in Europe during its prime. There are some estimates that the Medici family was, for a period of time, the wealthiest family in Europe. Estimating their wealth in today's money is difficult and imprecise, considering that they owned art, land, and gold. With this monetary wealth, the family acquired political power initially in Florence, and later in the wider spheres of Italy and Europe.
A notable contribution to the professions of banking and accounting pioneered by the Medici Bank was the improvement of the general ledger system through the development of the double entry system of tracking debits and credits or deposits and withdrawals.
Giovanni di Bicci de' Medici established the bank in Florence, and while he and his family were influential in the Florentine government, it was not until his son Cosimo the Elder took over in 1434 as gran maestro that the Medici became the unofficial head of state of the Florentine Republic.
History.
Founding.
The Medici family had long been involved in banking at a high level, maintaining their status as a respectably upper-class and notably wealthy family who derived their money from land holdings in the Mugello region towards the Apennines, north of Florence. The Medicis were not only bankers but innovators in financial accounting. At one point, the Medicis managed many of the great fortunes in Italy, from royalty to merchants.
Giovanni's father Averardo (?–1363; known as "Bicci") was not a very successful businessman or banker. A distant cousin, Vieri di Cambio (1323–1396), however, was one of Florence's more prominent bankers (the first of the various modestly upper-class Medici lineages, numbering around 20 in 1364). His banking house trained and employed Giovanni and his elder brother Francesco ("c." 1350–1412), who eventually became partners in the firm. Francesco became a junior partner in 1382, while Giovanni rose to become general manager of the Rome branch in 1385, which was incorporated as a partnership, though it was not necessary to capitalize that branch (because the Church was usually depositing funds and not borrowing). Vieri was long-lived, but his bank split into three separate banks sometime between 1391 and 1392. One bank failed quickly. The second, managed by Francesco and later his son, survived until 1443, a little less than a decade after Averardo's death. The third bank was controlled by Giovanni in partnership with Benedetto di Lippaccio de' Bardi (1373–1420).
The Medici bank's founding is usually dated to 1397, since it was this year that Giovanni di Bicci de' Medici separated his bank from his nephew Averardo's bank (which had effectively been acting as a branch in Rome), and moved his small bank from Rome to Florence. The branch in Rome was entrusted to Benedetto, and Giovanni took on Gentile di Baldassarre Buoni (1371–1427) as a partner. They raised 10,000 gold florins and began operating in Florence, though Gentile soon left the firm. This move had certain advantages for a bank, inasmuch as the predominant large banks of the 14th century which were based in Florence—the Bardi, Acciaioli, Peruzzi—had met with problems, and saw their places usurped by the Alberti, who were just large enough to capture the Catholic Church's business. But the Alberti firm split over internecine quarrels, and the clan was banished from Florence in 1382 (though they would be allowed to return in 1434), creating yet another void. Giovanni's choice proved to be prescient, especially since what Florence was lacking was a good port on the Mediterranean—which it would obtain in 1406 with the conquest of Pisa and its Porto Pisano. A further advantage was that it was much easier to invest a bank's capital in Florence than in Rome, and because of the Holy See's deposits (obtained through Giovanni's long contacts with them), the bank had a fair amount of capital to invest in other ventures.
Rise.
A factor was dispatched to Venice to seek out investment opportunities. He did well and on March 25, 1402, the third branch of the Medici bank was opened. It suffered from some initial mismanagement (by the factor who had previously done so well—he made the fatal mistake of violating the partnership agreement and loaning money to Germans; on a more humane note, he would eventually become a pauper and be sent 20 florins by Giovanni, who felt that a past partner deserved some charity), but soon was prospering. It was this branch that established the practice of having a general manager's remuneration be paid through shares in the branch that he purchased with his investment. Also in 1402, the first Medici factory was established for the production of woolen cloth, and then another in 1408. By this point, the Rome branch had established a branch in Naples (closed in 1425 and was replaced with one in Geneva) and Gaeta. It may seem that the Medici bank was flourishing and rapidly expanding its assets across Italy, but nevertheless there were perhaps only 17 employees in total of the bank in 1402, with only five at the central bank in Florence, although they were reasonably well-paid and promotions seem to have been rapid when warranted (such as in the case of Giuliano di Giovanni di ser Matteo, who went from being a clerk in 1401 to a junior partner in 1408).
In 1420, Benedetto de' Bardi (the "ministro", or general manager, of all the branches) died, and was succeeded by his younger brother Ilarione de' Bardi, who was the manager of the Rome branch. He dissolved one of the wool factories, along with other reorganizations occasioned by partnerships coming to their designated end. This date is interesting because Ilarione's contract with his principal was done in the name of Cosimo and Lorenzo, and not their father Giovanni; this perhaps marks the beginnings of a transfer of responsibility and power in the Medici bank from one generation to the next. Two Portinaris were put in charge of the Florence and Venice branches.
Giovanni died in 1429. According to Lorenzo, his fortune upon his death was worth around 180,000 gold florins. His death did not greatly affect the bank's operations, and the transition to Cosimo went smoothly, aided by Ilarione, who was retained as "ministro". Fortunately for the bank, Lorenzo di Giovanni di Bicci de' Medici was on excellent terms with Cosimo, and did not insist on dissolving the partnerships so he could receive his share of the patrimony (primogeniture not being operative here); many Florentine banks and mercantile businesses lasted only a generation or two because some of the inheriting sons usually wished to strike out on their own. At this time, the Medici bank was flourishing: besides the branches in Rome and Florence, the Venetian and Genevan branches had been founded. Ilarione would not last long in his position, and is mentioned as dead in a letter written in February 1433. The timing was unfortunate because the Albizzi government of Florence was moving against the young Medici-led resistance (galvanized by the Albizzi government's failure in a war against Lucca and Milan), culminating in Cosimo's exile to Venice. Despite the unfavorable politics in this period of the bank's history, its Italian branches turned in bumper profits, with as much as 62% of the total coming from Rome (in 1427, the Roman branch of the Medici bank had approximately 100,000 florins on deposit from the Papal Curia; in comparison, the total capitalization of the entire Medici bank was only about 25,000 gold florins) and 13% from Venice between 1420 and 1435 (with the later Medici branches opened in Bruges, London, Pisa, Avignon, Milan, and Lyon contributing nothing as they had not been founded yet). At this time, there seems to have been some sort of Medici office in Basel, and it seems to have lasted until 1443. De Roover speculates that it was a sub-branch of the Medici bank's Geneva branch serving the General Council of the Church, and was closed when the Council no longer made it worth their while to maintain it.
Maturation.
On March 24, 1439, the Medici branch at Bruges was officially founded. While the Medicis had done business in Flanders through correspondents and agents since 1416, it was only when the son of the Venice branch's manager (from 1417–1435) was sent to investigate in 1438 and favorably reported back that it was incorporated as a limited liability partnership with that son, Bernardo di Giovanni d'Adoardo Portinari (1407–"c."1457), assuming both the position of manager and the majority of the liability. When Angelo Tani (1415–1492) became junior partner in 1455, the branch was finally created as a full and equal partnership in the Medici bank. A legally similar situation was obtained for an "accomandita" established in Ancona, apparently to finance Francesco Sforza, an ally of Cosimo's.
As mentioned previously, Cosimo's uncle had begun a bank with his third of the ownership stake in Vieri's bank, and it closed in 1443 with the death of the grandson of Averardo, taking with it the Medici branch in Pisa. Formerly, any business that the Medici needed to transact in Pisa (such as Cosimo forwarding Donatello money to buy marble) had been done through them. On December 26, 1442, a limited liability partnership was formed with two outsiders. Over time, the Medici progressively reduced their investment in this partnership, and it appears that they withdrew completely sometime shortly after 1457, with only one partner keeping it running until 1476.
1446 saw the start of two Medici branches: the sub-branch that was the Bruges branch was converted into a full partnership, and a limited liability partnership in Avignon, the largest center of trade in southern France (despite the departure of the Papacy). Within 2 years, the Avignon branch was converted into a full partnership. The Medici branch at Lyons was not actually founded as a separate branch; it came about as a result of the gradual move of the Geneva branch, due to the reduction in traffic to the fairs at Geneva and the establishment of four major fairs in Lyons which attracted around 140 other Florentine businesses). The move was completed in 1466.
The structure and functions of the Medici bank were largely settled into their final form by this point; a branch would be opened in Milan in late 1452, or early 1453, at the instigation of the grateful Sforza. Its first manager Pigello Portinari (1421–1468) was very capable and this branch did well in loaning to the Sforza court and, like the Roman branch, selling luxuries such as jewels, until Pigello died and was replaced by his feckless brother Accerrito (1427–"c."1503) who could not manage the massive amounts lent to the Milanese court and to Duke Sforza (who did not repay his debts of 179,000 ducats before his death in 1478). A similar problem would plague the Bruges branch of the bank when managed by the third Portinari brother, Tommaso.
Still, this period (1435–1455) under Cosimo and his "ministro" Giovanni Benci was the Medici bank's most profitable period. With Cosimo's death on August 1, 1464, the decline of the bank began.
Decline.
Failure in Lyon and London.
An early sign of the decline was the near-failure of the Lyon branch because of its manager's venality, saved only by heroic efforts by Francesco Sassetti (1421–1490). Its troubles were followed by the troubled London branch, which got into trouble for much the same reason the Bruges branch would—unwisely loaning large sums to secular rulers, a group notorious for their delinquencies (in this case, the Yorkist Edward IV). In a sense, that branch had no choice but to make the loans, since it faced domestic opposition from English merchant and clothier interests in London and their representatives in Parliament, which was only granting the necessary export licenses to foreign-owned enterprises if its members were well-bribed with loans. The London branch of the Medici bank had already been dropped as a full partnership in 1465, and had been reincorporated as an "accomando". In 1467, Angelo Tani was dispatched to audit the London branch's books. Tani attempted to step up the collection of outstanding debt—the English king owed 10,500 pounds sterling, the English nobility 1,000, and another 7,000 pounds were tied up in goods dispatched on consignment and not soon recoverable. Operating funds were (like previous failing