8. Banking Practices AP Euro

Why is Banking Significant? Prior to the advent of banking, trade was conducted either by bartering or by actually carrying coins with you to make a purchase. The latter could leave one open to robbery. Because of the above complications, trade was limited and so too was a money economy. A limited money economy also impacted the size of the social classes for there was only a very small middle class in late medieval Europe. The sense of rebirth and revitalization found in the Renaissance partially was due to the economic successes of the time. These banking practices helped the development of capitalism.

Europe’s First Merchant Bankers The Fuggers and the Medicis were the renowned first merchant bankers of Europe. They assisted in economic growth by providing capital for states, traders and manufacturers. In doing so, the basic mechanisms for the transfer of credit evolved.

Jacob Fugger

As your text states, his was the wealthiest and most influential of the international banking families. His fortune was so great that he was able to loan money to various rulers, such as Holy Roman Emperor Charles V, to fund his wars. Fugger’s immense wealth was due to the use of specific banking practices.

Double Entry Bookkeeping Required three books: memorial book, journal, and ledger. Memorial book received a note of all transactions as they were made. Journal made up from memorial and summarized each day’s business in chronological order. Left hand column for debts and right column for credits. Ledger reserved a double page for each account, debits on the left and credits on right. Also had record of running balances, summaries of merchant’s assets, and lists of various categories of income and expenditure.

Systematic accounting methods are often seen as a pre-condition for the growth of capitalism.

Bills of Exchange Before bills of exchange were used a merchant had to carry the gold needed for a transaction. He exposed himself to robbers. This danger reduced the number of transactions that merchants were willing to make. Bills of exchange allowed for a merchant to go to a bank office in his city, pay for a transaction and receive a bill made out to whomever he wished to do business. No gold was transported, and a transaction could safely take place.

Loans and Usury Usury is the taking of interest, or of excessive interest, on money lent. In Christian Europe it was regarded as a sin and a crime. Jews believed that they could not practice usury with other Jews. Their religion did permit them to charge interest to a non-Jew. Jews were thus given an edge in medieval money markets and loan business. In reality Christians did loan money but only in secret. Nonetheless, Jews did have a prominent role in European credit and banking.