The expansion of trade and industry promoted the rise of banking. The risks of lending were great, but so, too, were the potential profits. In 1420 the Florentine government vainly tried to put a ceiling of 20 percent on interest rates. Bankers were money changers, for only experts could establish the relative value of the hundreds of coins in circulation.
Bankers also facilitated the transfer of money over long distances by bills of exchange, which bankers bought and sold and on which they took a commission. Letters of credit, which represented sums of money not physically transferred, were also safer than coins, since they could easily be hidden and carried by a cleric or other unsuspected person.
The great European bankers were Italians. By the late 1200s Italian bankers had become the fiscal agents of the pope. In the thirteenth century the Florentine banking families of the Bardi and the Peruzzi financed imports of English wool and the export of finished cloth; both firms advanced large sums to the kings of England and France at the outbreak of the Hundred Years’ War, and both failed in the 1340s when Edward III defaulted on his debts.
The repercussions of this banking failure included new attempts to democratize the Florentine government and the revolt of the ciompi against the tyranny of the wool guild. Florentine banking rallied in the fifteenth century under the dynamic Cosimo de’ Medici, whose activities involved companies for woolen and silk manufacture, as well as Medici bank and branch firms in Venice, Rome, Milan, Avignon, Geneva, Bruges, and London. However, the inefficiency of branch managers together with the extravagance of Lorenzo the Magnificent caused the failure of the Medici bank before the end of the century.
Meanwhile, money and banking were thriving elsewhere. The golden ducats of Venice joined the florins of Florence in international popularity, and the Bank of St. George, founded at Genoa in 1407, eventually took over much of the Mediterranean business done by Spanish Jews before their persecution in the late 1400s. In France, Jacques Coeur of Bourges (1395-1456) used private wealth to secure public office and was master of the mint and superintendent of royal expenditure for Charles VII.
In Germany powerful banking families flourished in the cities of Augsburg and Nuremberg. The most famous was the Fugger family of Augsburg, whose founder was a linen weaver and trader in the late fourteenth century; his sons and grandsons imported textiles and luxuries from Venice and began buying silver and lead mines. In the late 1400s the Fuggers became bankers to the Habsburgs and, after the failure of the Medici bank, to the papacy as well.
In the 1540s the family fortune may have exceeded half a billion of present-day dollars. Thereafter it dwindled, as the flood of gold and silver from America ended the central European mining boom and as the Fuggers themselves made extensive loans to the Habsburg Philip II of Spain, who suffered repeated bankruptcies. In 1607 the family firm went bankrupt.