Banking

THE FIRST TIME EUROPEAN ECONOMIES WERE CONNECTED -- 9/16/15

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Today's selection -- from Spain by Robert Goodwin. Before the discovery of the Americas, banking in Europe took place at small county fairs where money lenders issued notes and collected interest. The system changed dramatically during the 1500s when the wealth from the Americas flowed into Spain and international merchant banking was born.

"Banking was in its infancy in the early 1500s. A theologian from Salamanca called Sarabia de la Calle described how bankers:

travelled from fair to fair, or followed the court from place to place, and set up in the squares or streets with their tables and their coffers and their account books. They openly lend their money and collect interest charges at each fair, or from time to time. They make loans and take deposits, even paying interest, and the first thing that the merchants do when they come to trade at the fairs is hand over their money to these bankers.

The usurers, Marinus van Reymerswaele (1490 - 1567). Firenze, Museo Stibbert.

"Here we see banking in its simplest form, a man with a table, a safe of some sort and a written record of his transactions. Since the Middle Ages, the leading operators of this simple system of lending money and taking deposits had developed a lucrative business offering travellers, merchants and governments a safe way of sending large quantities of money over long distances. Because these bankers were considered so creditworthy and so trustworthy, a banker in, say, Seville could write a kind of cheque or banker's draft known as a bill of exchange which could be drawn on a specific bank in Antwerp by a designated individual; and, because bankers were so effective at accumulating capital, the real money rarely had to be physically moved. They made money by charging a handsome spread on the exchange rate and by lending out the client's deposit while the bill of exchange was in transit. A thriving secondary market in bills of exchange began to emerge, and the great banking families and syndicates sent representatives to a handful of major fairs at which these debts and obligations were bought and sold as well as being settled.

The gold and most importantly the silver that flooded into Spain from the Americas was a massive stimulus to trade across Europe and also brought about the first period in history of sustained price inflation across a large area; the previously independent economies of Europe quickly became inexorably connected. The bankers, who had until then been little more than glorified moneylenders, now found themselves at the centre of a world awash with money, and international merchant banking was born. ...

"German bankers were charting, in their account books, a voyage of monetary discovery across an unexplored ocean of financial uncertainty. They overexposed themselves to Charles's borrowing and were hurt badly by his occasional forced reorganizations of his debt, and the risk-averse Germans reduced their involvement. The 'old nobility' of Genoa stepped in to fill the gap, encouraged by the bond that the naval commander Andrea Doria and his family had forged with the Habsburgs: savvy, wily, imaginatively creative, hungry for reward, with a sailor's instinctive relationship with risk, these Genoese developed a variety of financial instruments and services that made them recognizable today as investment bankers in the modern sense."

author:	Robert Goodwin
title:	Spain: The Centre of the World 1519-1682
publisher:	Bloomsbury Press
date:	Copyright Robert Goodwin 2015
pages:	183-184