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130-560: The Stevensville Bank is a historic bank building located near the center of Stevensville , Maryland , United States , and is in the Stevensville Historic District . The building's name is a reference to Stevensville Savings Bank which once occupied the building. The classically detailed bank is now used as a law office. It was listed on the National Register of Historic Places in 1985. Stevensville Savings Bank

260-499: A Registered Historic Place in Queen Anne's County , Maryland is a stub . You can help Misplaced Pages by expanding it . Bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans . Lending activities can be directly performed by the bank or indirectly through capital markets . Whereas banks play an important role in financial stability and

390-634: 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

520-1009: A Medici branch. If the bank could not establish a branch somewhere, then they would usually contract with some Italian banker (preferably one of the Florentine banks) to honor drafts and accept bills of exchange: So the Medici were represented by the firm of Filippo Strozzi and Co. in Naples , by Piero del Fede and Co. in Valencia , by Nicolaio d'Ameleto and Antonio Bonafè in Bologna , by Filippo and Federigo Centurioni in Genoa , by Gherardo Bueri —a close relative of Cosimo—in Lübeck , and so forth. Of course, if an Italian agent could not be procured, any trustworthy banker would do; in Cologne , their representative

650-412: A bank account is considered indispensable by most businesses and individuals. Non-banks that provide payment services such as remittance companies are normally not considered as an adequate substitute for a bank account. Banks issue new money when they make loans. In contemporary banking systems, regulators set a minimum level of reserve funds that banks must hold against the deposit liabilities created by

780-516: 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,

910-572: A frenzied mob. Nevertheless, the sources are sufficiently numerous (exceeded only by the Datini 's bank's archives, in Tuscany /Prato) that the Medici bank is well understood, especially as the remains of the Medici records were given to the city of Florence by a descendant of the Medici. Banks in Renaissance Florence were generally divided into three or four kinds: Because of communication delays,

1040-425: A large number of small to medium-sized institutions in its banking system. As of November 2009, China's top four banks have in excess of 67,000 branches ( ICBC :18000+, BOC :12000+, CCB :13000+, ABC :24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches – more than double

1170-423: A more contemporary viewpoint in his Istorie fiorentine , asserting that the fall of the Medici was due to their loose rein on their bank's managers who began to act like princes and not sensible businessmen and merchants. When the crisis loomed, one way to try to avert it was to simply start reducing the interest paid on discretionary and demand deposits . But such a move would have hurt the Medici name, and so it

1300-420: A particular Medici branch a certain sum of money, as verified by the general or assistant manager of that branch (who were the only ones allowed to make out such bills). The bill instructed the recipient Medici branch to pay back that sum in local currency, but not at whatever the local exchange rate for the two currencies concerned happened to be at the moment the bill was presented to be cashed in, but rather at

1430-694: 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

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1560-466: A portion of his debt, but these reductions were soon rendered less helpful (but not negated outright) by fresh loans and sales of silk. By the spring of 1469, Tani had finished repairing the London branch's operations to his own satisfaction, and returned to Italy. His work would be undone by the unhelpfulness of the other branch managers and the fecklessness of the London branch manager Canigiani. The fatal blow

1690-463: A profit when a bill was issued in one of the Italian branches because they could demand a premium of sorts for being asked to deliver money in a far away place at however far in the future usance set the maturation date. De Roover offers this real example: Around July 15, 1441, the Medici of Venice bought a bill on Bruges at the rate of 54 1 ⁄ 2 groats per Venetian ducat . Two months later, when

1820-403: A proxy for general economic conditions, as the problem could be that "by this time, in fact, Florentine guilds had long lost much of an economic function in the areas of their formally defined activity, with the result that the quality of their internal administration deteriorated; but this institutional history cannot be taken as an indicator of the vitality of the respective sectors of the economy

1950-472: A reckoning of profits would be made. Indeed, the structure of the Medici Bank resembles nothing so much as the modern holding company . The branch manager (the governatore , or "governor", would have put up a portion of his own money at the start of the partnership) and the investing partners could take out their profits at this point, since salaries or dividends were not paid when the partnership agreement

2080-556: A result of good relations between brothers, but because one of the two heirs died before inheriting. In theory, Lorenzo's son Pierfrancesco could have insisted on his share of the estate, but Pierfrancesco was raised by Cosimo and "his emotional ties to his uncle were sufficiently strong to preclude his withdrawal from the company." Pierfrancesco seems to have grown increasingly disaffected, but his death in 1476 prevented any separation. In retrospect, given how Lorenzo would steal from Pierfrancesco's estate while raising his two sons to finance

2210-416: A safe and convenient form of money backed by the goldsmith's promise to pay, allowing goldsmiths to advance loans with little risk of default . Thus the goldsmiths of London became the forerunners of banking by creating new money based on credit. The Bank of England originated the permanent issue of banknotes in 1695. The Royal Bank of Scotland established the first overdraft facility in 1728. By

2340-455: A salary for their service. So the nine original outsiders could slowly leverage their 21 1 ⁄ 4 shares to overwhelm the Peruzzi's collective 36 3 ⁄ 4 shares. The lack of clear leadership, though, when the leading partner died has been suggested as another factor in the failure of the Bardi and Peruzzi banks. Such a takeover was impossible in the Medici Bank. The essential structure

2470-522: A supply of English wool to weave, it could not sell its textile wares, and more importantly, could not employ the Florentine lower classes who specialized in textiles. Flemish wool had once served in English wool's place, but after the 1350s, it no longer had a market in Italy and was essentially not imported after 1400. Unemployment generated considerable political unrest and revolts, which would be aimed at Piero and

2600-471: A thorough accounting is unknown. Machiavelli can probably be trusted here since there was a rash of bankruptcies and bank failures in Florence shortly after Cosimo's death which led to a small recession. De Roover mentions, however, the war between Venice and the Ottoman Empire and the relevant firms' connections to that area as a possible factor as well. It is certain, however, that Piero tried to wind up

2730-399: A variety of different ways including interest, transaction fees and financial advice. Traditionally, the most significant method is via charging interest on the capital it lends out to customers. The bank profits from the difference between the level of interest it pays for deposits and other sources of funds, and the level of interest it charges in its lending activities. This difference

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2860-420: A whole pound, he takes a loss: instead of the 10 pounds he could have gotten had he not bought the bill of exchange, he will instead receive only 5. Similarly, if the florin weakens greatly, he could well reap a windfall at the expense of the London branch. Clearly the branches would want to try to maximize sales of bills of exchange in the former situation, where the rate of the issuing currency increases between

2990-446: Is a bank regulation , which sets a framework within which a bank or depository institution must manage its balance sheet . The categorisation of assets and capital is highly standardised so that it can be risk weighted . After the financial crisis of 2007–2008 , regulators force banks to issue Contingent convertible bonds (CoCos). These are hybrid capital securities that absorb losses in accordance with their contractual terms when

3120-400: Is a Bills of Exchange Act that codifies the law in relation to negotiable instruments , including cheques, and this Act contains a statutory definition of the term banker : banker includes a body of persons, whether incorporated or not, who carry on the business of banking' (Section 2, Interpretation). Although this definition seems circular, it is actually functional, because it ensures that

3250-403: Is a list of the largest deals in history in terms of value with participation from at least one bank: Currently, commercial banks are regulated in most jurisdictions by government entities and require a special bank license to operate. Usually, the definition of the business of banking for the purposes of regulation is extended to include acceptance of deposits, even if they are not repayable to

3380-431: Is referred to as the spread between the cost of funds and the loan interest rate. Historically, profitability from lending activities has been cyclical and dependent on the needs and strengths of loan customers and the stage of the economic cycle . Fees and financial advice constitute a more stable revenue stream and banks have therefore placed more emphasis on these revenue lines to smooth their financial performance. In

3510-605: The Basel Accords . Banking in its modern sense evolved in the fourteenth century in the prosperous cities of Renaissance Italy but, in many ways, functioned as a continuation of ideas and concepts of credit and lending that had their roots in the ancient world . In the history of banking , a number of banking dynasties  – notably, the Medicis , the Pazzi , the Fuggers ,

3640-705: The Federal Deposit Insurance Corporation (FDIC) as a regulator. However, for soundness examinations (i.e., whether a bank is operating in a sound manner), the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of the Comptroller of the Currency (OCC) is the primary federal regulator for national banks. State non-member banks are examined by the state agencies as well as

3770-631: The Great Depression , the U.S. Savings and Loan crisis in the 1980s and early 1990s, the Japanese banking crisis during the 1990s, and the sub-prime mortgage crisis in the 2000s. The 2023 global banking crisis is the latest of these crises: In March 2023, liquidity shortages and bank insolvencies led to three bank failures in the United States , and within two weeks, several of the world's largest banks failed or were shut down by regulators Assets of

3900-522: The Medici Bank , in 1397. The Republic of Genoa founded the earliest-known state deposit bank, and Banco di San Giorgio (Bank of St. George), in 1407 at Genoa , Italy. Fractional reserve banking and the issue of banknotes emerged in the 17th and 18th centuries. Merchants started to store their gold with the goldsmiths of London , who possessed private vaults , and who charged a fee for that service. In exchange for each deposit of precious metal,

4030-553: 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,

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4160-563: The Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green tablecloths. The definition of a bank varies from country to country. See the relevant country pages for more information. Under English common law , a banker is defined as a person who carries on the business of banking by conducting current accounts for their customers, paying cheques drawn on them and also collecting cheques for their customers. In most common law jurisdictions there

4290-577: The Welsers , the Berenbergs , and the Rothschilds  – have played a central role over many centuries. The oldest existing retail bank is Banca Monte dei Paschi di Siena (founded in 1472), while the oldest existing merchant bank is Berenberg Bank (founded in 1590). Banking as an archaic activity (or quasi-banking ) is thought to have begun as early as the end of the 4th millennium BCE, to

4420-454: The economy of a country, most jurisdictions exercise a high degree of regulation over banks. Most countries have institutionalized a system known as fractional-reserve banking , under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity , banks are generally subject to minimum capital requirements based on an international set of capital standards,

4550-474: The 15,000 branches in the United Kingdom. Between 1985 and 2018 banks engaged in around 28,798 mergers or acquisitions, either as the acquirer or the target company. The overall known value of these deals cumulates to around 5,169 bil. USD. In terms of value, there have been two major waves (1999 and 2007) which both peaked at around 460 bil. USD followed by a steep decline (−82% from 2007 until 2018). Here

4680-404: The 19th century, we find in ordinary cases of deposits, of money with banking corporations, or bankers, the transaction amounts to a mere loan, or mutuum , and the bank is to restore, not the same money, but an equivalent sum, whenever it is demanded and money, when paid into a bank, ceases altogether to be the money of the principal (see Parker v. Marchant, 1 Phillips 360); it is then the money of

4810-419: The 3rd millennia BCE. The present era of banking can be traced to medieval and early Renaissance Italy, to the rich cities in the centre and north like Florence , Lucca , Siena , Venice and Genoa . The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing branches in many other parts of Europe. Giovanni di Bicci de' Medici set up one of the most famous Italian banks,

4940-512: 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

5070-663: 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

5200-488: The Bruges branch. After Piero's death, Portinari managed to get articles of partnership so favorable that he lived in Florence, only visiting the Low Countries for business. The end-period of the branch would be marked by chaos and possibly fraud. Portinari would refuse to return some deposits, claiming that the monies had really been invested in partnership. He would also claim Angelo Tani as a full partner (and thus liable in

5330-550: The Council no longer made it worth their while to maintain it. 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

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5460-522: The FDIC. National banks have one primary regulator – the OCC. Each regulatory agency has its own set of rules and regulations to which banks and thrifts must adhere. The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a formal inter-agency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions. Although

5590-525: The FFIEC has resulted in a greater degree of regulatory consistency between the agencies, the rules and regulations are constantly changing. Medici Bank 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

5720-460: The London branch and recover as much of the loans made to Edward IV as possible, ordered the Milan branch to loan less, instructed Tommaso Portinari of the Bruges branch to get rid of the galleys and not make any loans to secular rulers, and attempted to shut down the Venice branch which was no longer profitable. From the perspective of carrying out his policies, Piero faced a number of obstacles—it

5850-467: The Medici Bank was forced to establish two groups of relatively independent subsidiary units in important cities which communicated with the head bank via mail. Pisa , Milan , Venice in 1402, Geneva (moved to Lyons in 1466), Avignon , Bruges , London and an itinerant branch that followed the Pope around to tend to his needs—not for nothing have they been called "God's Bankers" —all hosted

5980-572: 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 branches had done) borrowed from Medici branches at high rates of interest. Edward IV amortized

6110-478: 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

6240-514: The Medici since he and his family were seen as the true rulers of Florence. The second reason was that there was a systemic specie problem in the Medici bank in which hard currency flowed south to Italy from the northern countries, and the import of English wool was necessary to provide a conduit for currency to flow north and balance the books. So when King Edward IV demanded loans, the London branch had little choice but to oblige him if it wanted to continue to export English wool to Florence. By 1494,

6370-554: The Medici-rented employee housing (although the managers had little say in their selection, which was done by the Florence bank), but policy was set by the seniors, and often firmly. The Bruges branch was, when first incorporated, strictly forbidden by the terms of the partnership to lend money to temporal lords and kings. Policy would generally be communicated to the branch managers during their biennial or triennial trips to Florence to report in person and discuss important issues, or in

6500-546: The Milan branch of the Medici bank also ceased to exist. The branches that did not die off on their own generally met their end with the collapse of the Medicis' political power in Florence in 1494, when Savonarola and the Pope struck against them. The central Florentine banco was burned by a mob, the Lyons branch was taken over by a rival firm, and the Roman branch struck off on its own despite

6630-567: The UK, for example, the Financial Services Authority licenses banks, and some commercial banks (such as the Bank of Scotland ) issue their own banknotes in addition to those issued by the Bank of England , the UK government's central bank. Banking law is based on a contractual analysis of the relationship between the bank (defined above) and the customer  – defined as any entity for which

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6760-617: 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

6890-427: The approaching problems, and tried to begin a "policy of retrenchment". This policy doesn't seem to have been fully carried out. Niccolò Machiavelli states in his history of Florence that Piero's policy involved calling in loans for repayment, which caused a number of Florentine businesses to collapse, sparking a plot against Piero and Medici rule. Whether Machiavelli is overstating issues and Piero had merely ordered

7020-639: The bank agrees to conduct an account. The law implies rights and obligations into this relationship as follows: These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force within a particular jurisdiction may also modify the above terms or create new rights, obligations, or limitations relevant to the bank-customer relationship. Some types of financial institutions, such as building societies and credit unions , may be partly or wholly exempt from bank license requirements, and therefore regulated under separate rules. The requirements for

7150-469: The bank and depended on his secretary and his great-uncle Giovanni Tornabuoni to handle everything. The two mismanaged the bank and balked the new ministro's, Giovambattista Bracci, efforts (Sassetti having died of a stroke in March 1490). If the Medici family and its bank had not been politically overthrown in 1494, it would probably have failed shortly thereafter in a long-delayed bankruptcy. Another factor in

7280-446: 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

7410-566: 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. 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

7540-411: The bank will not repay it), and interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates force it to pay relatively more on its deposits than it receives on its loans). Banking crises have developed many times throughout history when one or more risks have emerged for the banking sector as a whole. Prominent examples include the bank run that occurred during

7670-667: The bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as Automated Clearing House (ACH), Wire transfers or telegraphic transfer , EFTPOS , and automated teller machines (ATMs). Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits , and by issuing debt securities such as banknotes and bonds . Banks lend money by making advances to customers on current accounts, by making installment loans , and by investing in marketable debt securities and other forms of money lending. Banks provide different payment services, and

7800-456: The banker, who is bound to return an equivalent, by paying a similar sum to that deposited with him, when he is asked for it. The goldsmith paid interest on deposits. Since the promissory notes were payable on demand, and the advances (loans) to the goldsmith's customers were repayable over a longer time-period, this was an early form of fractional reserve banking . The promissory notes developed into an assignable instrument which could circulate as

7930-655: The beginning of the 19th century Lubbock's Bank had established a bankers' clearing house in London to allow multiple banks to clear transactions. The Rothschilds pioneered international finance on a large scale, financing the purchase of shares in the Suez canal for the British government in 1875. The word bank was taken into Middle English from Middle French banque , from Old Italian banco , meaning "table", from Old High German banc, bank "bench, counter". Benches were used as makeshift desks or exchange counters during

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8060-441: The beginning of the bank's decline to Cosimo de' Medici. He spent the vast majority of his time wrapped up in politics, and when he was not preoccupied with the intricate plotting and other characteristics of Florentine politics, he was patronizing the many fine Renaissance scholars and artists who were present there, or engaged in composing his own renowned poetry. This left minimal time for the careful selection of branch managers and

8190-477: The bill matured, they received in Bruges 54 1 ⁄ 2 groats for each ducat. With the proceeds of this bill the Bruges branch, acting as [an] agent for the Venice branch, bought a bill on Venice, payable at the end of two months, at the rate of 51 1 ⁄ 2 groats per ducat. The Medici of Venice thus made a profit of 3 groats on each ducat over a period of four months, since they received 54 1 ⁄ 2 groats and paid 51 1 ⁄ 2 groats. If

8320-443: The books and dissolve the partnership. Portinari ironically found himself hoisted by his own petard; he could not refuse the dissolution, since the maggiore Lorenzo had given the proper notice, and he further had to accept his own cooked books because he claimed that the books were accurate and the rather doubtful assets listed were indeed worth what they were worth. The agent Ricasoli was aided in this task by Angelo Tani, who came all

8450-451: The branch being bankrupt in general (ironically, they would suffer still more debts when a Medici cardinal became Pope Leo X and inquired after the 11,243 gold florins he had deposited with the branch back when it was with the Medici bank). Even at the time of its downfall, the Medici bank was the biggest bank in Europe, with at least seven branches and over fifty factors. De Roover attributes

8580-560: 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

8710-515: The business of banking for the purposes of the legislation, and not necessarily in general. In particular, most of the definitions are from legislation that has the purpose of regulating and supervising banks rather than regulating the actual business of banking. However, in many cases, the statutory definition closely mirrors the common law one. Examples of statutory definitions: Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking ,

8840-533: The capital of the issuing bank falls below a certain level. Then debt is reduced and bank capitalisation gets a boost. Owing to their capacity to absorb losses, CoCos have the potential to satisfy regulatory capital requirement. The economic functions of banks include: Banks are susceptible to many forms of risk which have triggered occasional systemic crises. These include liquidity risk (where many depositors may request withdrawals in excess of available funds), credit risk (the chance that those who owe money to

8970-483: The cheque has lost its primacy in most banking systems as a payment instrument. This has led legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques . Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers in

9100-422: The clever ruse of shifting all the London branch's business to the Bruges branch—except for the profitable wool business. Portinari bought into the separate partnership to the tune of 45%, whereas his share in the Bruges branch was only 27.5%. The branch was liquidated in 1478 with staggering losses. The failure of the Bruges branch meant that not only the debts of that branch had to be handled somehow, but also

9230-416: The court and the aristocracy was probably the chief reason for establishing branches in both Milan in 1452 or 1453 and Naples in 1471, and over-extension of credit through personal loans created severe and ultimately insurmountable problems for both operations. With Lorenzo's death on April 8, 1492, the succession passed to his 20-year-old son Piero di Lorenzo (1472–1521). Piero had no talent for running

9360-423: The cross-selling of complementary products. Banks face a number of risks in order to conduct their business, and how well these risks are managed and understood is a key driver behind profitability, and how much capital a bank is required to hold. Bank capital consists principally of equity , retained earnings and subordinated debt . Some of the main risks faced by banks include: The capital requirement

9490-408: The customer's order – although money lending, by itself, is generally not included in the definition. Unlike most other regulated industries, the regulator is typically also a participant in the market, being either publicly or privately governed central bank . Central banks also typically have a monopoly on the business of issuing banknotes . However, in some countries, this is not the case. In

9620-483: The decline of the Medici bank were the spending habits of the Medici. According to Lorenzo, between 1434 and 1471, the family spent an average of 17,467 gold florins a year. Another misjudgement or failure by Sassetti was placing his trust in Tommaso Portinari instead of in more trustworthy managers like Angelo Tani; Portinari would eventually cause the collapse of the bank's Bruges branch. Niccolò Machiavelli gave

9750-517: 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

9880-401: The devaluation of gold against silver (which held steady) between 1475 and 1485 —possibly thanks to increased output by German and Bohemian silver mines—meant that as creditors, the Medici Bank was on the wrong side of the trend. Their deposits were held in gold, and interest was paid in gold. This trend was in part attributable to Florence's reluctance to debase the gold florin, which

10010-434: The exchange rate in Bruges had been 54 1 ⁄ 2 groats instead of 51 1 ⁄ 2 per ducat, the Medici of Venice would have broken even because they would have paid and received the same number of groats for each ducat. A controlling interest in a bottega di seta (silk shop) and two botteghe di lana (cloth manufacturing establishment) were further possessions of the Medici (although run in partnership with men of

10140-439: The exchange rate set when the presenting (or current owner; bills of exchange could be sold and traded freely) person bought the bill of exchange. That there was a difference in time was guaranteed by the terms of the bill. A specific date could be set, but generally the time between a bill was issued in one city and could be cashed in at another was set by long-standing custom, or at usance . The usance between Florence and London

10270-436: 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

10400-451: The failure of the Bruges branch) appealed to him to overrule Sassetti and restrict the lending of the London branch, that "he [Lorenzo] did not understand such matters." He would later admit that his lack of knowledge and understanding was the reason he approved Tommaso Portinari's disastrous schemes. Goldthwaite faults Lorenzo in no uncertain terms: Lorenzo il Magnifico, for whom politics always took priority over business. Service to

10530-423: The fraud at the Lyons branch until it was too late for it to hope to remain solvent. The branch manager Lionetto de' Rossi had attempted to cover up his incompetence by being far too optimistic as to the number of bad loans the branch would have to cover, and by borrowing funds from other banks, thus artificially inflating his profits. That, however, is not the only factor that caused the fall. A long term trend in

10660-589: The funding of these loans, in order to ensure that the banks can meet demands for payment of such deposits. These reserves can be acquired through the acceptance of new deposits, sale of other assets, or borrowing from other banks including the central bank. Activities undertaken by banks include personal banking , corporate banking , investment banking , private banking , transaction banking , insurance , consumer finance , trade finance and other related. Banks offer many different channels to access their banking and other services: A bank can generate revenue in

10790-407: The goldsmiths issued receipts certifying the quantity and purity of the metal they held as a bailee ; these receipts could not be assigned, only the original depositor could collect the stored goods. Gradually the goldsmiths began to lend money out on behalf of the depositor , and promissory notes , which evolved into banknotes, were issued for money deposited as a loan to the goldsmith. Thus, by

10920-454: The guild itself into disuse, the outside chronicler Giovanni Cambi noting that of the 9 large banks left in Florence by 1516, one failed on December 25. This banking decline does not appear to have been specific to Florence; similar declines were seen in Bruges and Venice (although apparently not in Spain ). Similarly, the northern branches of all European banks were squeezed by a general decline in

11050-679: The guilds nominally represented." Piero died on December 2, 1469. He was succeeded by his two sons, Lorenzo and Giuliano. Lorenzo's interest in politics and art (which led to his appellation "the Magnificent") forced him to rely on his ministro Francesco Sassetti to handle most affairs of the bank. Sassetti can be faulted and inculpated in the decline of the bank for failing to prevent the disasters of Lyon and Bruges, and Lorenzo for relying too much on Sassetti and not listening to him when Sassetti did notice problems or tried to fix things. Indeed, Lorenzo once said when Angelo Tani (who had tried to prevent

11180-421: The interest on the deposit, since a depositor would gain revenue on the principal without any risk to the principal, which would have made both parties usurers and sinners; nor could they charge fees or other such devices. Discretionary deposits were a partial way out, but the bank made most of its money by selling holographic "bills of exchange". These bills certified that a particular person or company had paid

11310-442: The issue of a bank license vary between jurisdictions but typically include: Banks' activities can be divided into: Most banks are profit-making, private enterprises. However, some are owned by the government, or are non-profit organisations . The United States banking industry is one of the most heavily regulated and guarded in the world, with multiple specialised and focused regulators. All banks with FDIC-insured deposits have

11440-409: The largest 1,000 banks in the world grew by 6.8% in the 2008–2009 financial year to a record US$ 96.4 trillion while profits declined by 85% to US$ 115 billion. Growth in assets in adverse market conditions was largely a result of recapitalisation. EU banks held the largest share of the total, 56% in 2008–2009, down from 61% in the previous year. Asian banks' share increased from 12% to 14% during

11570-556: 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

11700-450: The legal basis for bank transactions such as cheques does not depend on how the bank is structured or regulated. The business of banking is in many common law countries not defined by statute but by common law, the definition above. In other English common law jurisdictions there are statutory definitions of the business of banking or banking business . When looking at these definitions it is important to keep in mind that they are defining

11830-507: The losses), despite the fact that Tani never signed the articles or written with his approval. The magnitude of the financial failures is hard to state. In a surviving memorandum, Lorenzo the Magnificent gives the bad debts to Charles the Bold alone as the sum of 16,150 pounds groat. The articles of partnership, incidentally, strictly forbade Portinari to lend more than the total of 6,000 pounds groat. In another memorandum, Lorenzo faults Portinari for

11960-574: The maintenance of an alert watch against fraud within the bank, which was greatly needed. Most of the financial duties handed over to Francesco Sassetti, who had risen from being a mere factor in the Avignon branch to its general manager, and then a post in Geneva eventually to end up in 1458 in Florence proper at Cosimo's side. Sassetti was left to handle much of the business himself. In the end, it turned out badly. Whether simply due to bad luck, old age, increasing laziness, or diversion of his time to studying humanism like Cosimo, Sassetti failed to discover

12090-495: The manager Alessandro Martelli invested 2,000 of the 14,000 ducats. He would be paid of the total profits not his fair 1 ⁄ 7 th, but rather 1 ⁄ 5 th ). The manager could, if he wished, attempt to start a rival bank, but he could not legally claim to be part of the Medici Bank, since a right to use that trademarked name came with the partnership. This measure would turn out to be effective against ambitious dissident juniors like Tommaso Portinari. However, even before

12220-441: The necessary technical expertise). They paid by the piece and ran on the putting-out system ; for the wool especially it was a very complex system, in which the early steps had to be done in the factories but then the spinning of the wool was done by women outside the factory, and the yarn collected to be brought to the weavers, who would then turn it over to the dyers and finishers in the factory. Legally, they were incorporated much

12350-412: 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

12480-456: The outstanding Plantagenet debt. After the London branch failed, it was turned into a accomando and placed under the control of the Bruges branch, managed by the third of the Portinari brothers, Tommaso Portinari . This branch, too, would soon fail. Portinari had managed the Bruges branch for decades, and had steadily proven himself to be a poor manager—he engaged in business dealings on

12610-412: The outstanding debts of the former London branch. In total, upwards of 70,000 gold florins were lost. This figure is optimistic, since it assumes most book assets were worth the recorded value. As Lorenzo remarked, "These are the great profits which are accruing to us through the management of Tommaso Portinari." Lorenzo refused to take this loss lying down, and dispatched a trusted agent to Bruges to audit

12740-455: The past 20 years, American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions. This helps in making a profit and facilitates economic development as a whole. Recently, as banks have been faced with pressure from fintechs, new and additional business models have been suggested such as freemium, monetisation of data, white-labeling of banking and payment applications, or

12870-444: The political pressure of King Charles VIII of France 's 1494 invasion of Italy caused Piero di Lorenzo de' Medici to concede to the dual forces of Charles and the impending insolvency of the Medici bank. The Medici bank's remaining assets and records were seized and distributed to creditors and others. All the branches were declared dissolved. Not much remains of the Medici Bank's records; mentions of it and its activities are rife in

13000-420: The private letters and reports their couriers carried. Usury was still banned by the Church in this period, with an interpretation concisely expressed as Quidquid sorti accedit, usura est ("Whatever exceeds the principal is usury"). So the Medici Bank could not openly adopt the modern formula of promising to pay interest on demand deposits and loaning out a fraction of the deposits at greater interest to pay for

13130-578: The same as the branches, although unlike the branches, the managers apparently had complete latitude in managing employees. The silk shop produced some of the finest silk wares, and were usually sold to Florentine exporters or shipped to the branch in Bruges as a consignment to feed the Burgundian court's strong appetite for such goods, or to the branch in Milan to sell to the Sforza court. The cloth manufacturers similarly produced very high-quality pieces and sold

13260-423: The shares' profits were paid out, any sums invested in the branch outside of an ownership of shares were repaid at a set interest rate, sometimes leading to one branch paying another for the latter's investment in the former. Governors were given wide latitude in daily operations and in the management of their seven or eight assistant managers, clerks, cashiers, accountants , or couriers who lived and boarded at

13390-423: The side, ingratiated himself with the Burgundian court by excessive loans (first to secure the farming of the toll of Graveline —which was never very profitable—and then to mingle socially and elevate himself), made poor business deals like purchasing two galleys (which would be partially sold off at a loss; the rest would be lost to shipwreck and piracy). The debts from the London branch were assumed by

13520-498: The supply of English wool. Agreement on these aggravating factors does not seem to be universal; Richard A. Goldthwaite writes in 1987 that "these economic conditions have never been adequately explained. It appears more likely that the contraction and decline of the Medici bank under Lorenzo—it was reduced to branches in only Florence, Rome and Lyons by the time he died in 1492—were due simply to bad management." He also claims that banking guild memberships cannot be used as

13650-463: The taxman. The once voluminous internal documentation has been grievously reduced by the passage of time: This study is based mainly on the business records of the Medici Bank: partnership agreements, correspondence, and account books. The extant material is unfortunately fragmentary; for example, no balance sheets have survived. Only a few pages of some of the account books have escaped destruction by

13780-468: The time of issuance and payment. This they attempted to do with frequent letters between branches and paying close attention to exchange rates. While close to loans, the element of risk meant that this practice did not actually become usury, except in the case of "dry exchange", where the moving around of money was fictitious. With appropriate issuances of bills, branches could move around money and actually make money. Similarly, they could be fairly certain of

13910-477: 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

14040-457: The war against Rome following the Pazzi Conspiracy , Pierfrancesco would have been wiser to effect such a separation. Specifically, Lorenzo appropriated about 53,643 gold florins and only repaid part of the sum. Piero was not Cosimo's equal, but given his training did perhaps better than one would expect, especially considering how he was rendered bedridden by severe gout . Piero recognized

14170-480: The way from Florence to settle the matter of his supposed partnership in the London branch through the Bruges branch. Upon Cosimo's death, his estate and control of the bank passed to his eldest son, Piero di Cosimo "the Gouty" ( Piero il Gottoso ). Piero had been given a humanist education, unlike his younger brother who was trained in business but had died in 1463. The estate remained intact, though in this case not as

14300-442: The writings of outsiders, but outsiders necessarily had little access to the balance books which could truly tell the story of the bank's rise and fall, and certainly not to the confidential business correspondence and the secret books. Some of the most copious documentation, derived from archived tax records such as the catasto records, are largely useless since the various principals of the bank were not above flagrantly lying to

14430-459: The year, while the share of US banks increased from 11% to 13%. Fee revenue generated by global investment in banking totalled US$ 66.3 billion in 2009, up 12% on the previous year. The United States has the most banks in the world in terms of institutions (5,330 as of 2015) and possibly branches (81,607 as of 2015). This is an indicator of the geography and regulatory structure of the US, resulting in

14560-403: Was 3 months, for example. A fictional but illustrative example: a merchant is traveling from Florence to London. He buys a bill of exchange for 10 florins, with the understanding that the London branch will cash that bill at half a pound to the florin, for a total of 5 pounds. If he reaches London and discovers that the florin has become stronger against the pound, to the point where a florin buys

14690-427: Was always politically costly to demand that loans be repaid, particularly when made to monarchs and powerful nobles and such demands could cost Piero dearly close to home. The king of England had him over a barrel as the king could block any attempts to export English wool by the Medici, which was desperately needed by the bank for two reasons. English wool was the finest in the world; if Florence's artisans did not have

14820-447: 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

14950-533: 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

15080-399: Was in effect, but usually the Florentine partners ( maggiori , "seniors") and the branch manager would then incorporate a fresh partnership if the manager's performance had been satisfactory. Managers were not paid salaries, but were considered to have invested in the partnership a sum greater than they actually had (for example, in 1455, the Venice branch's partnership agreement was renewed and

15210-422: 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

15340-466: Was internationally esteemed for its stable value, prestige, and reliability. But Florence's dual coinage system only aggravated the problem. This shift in the monetary system perhaps reflected a systemic slowdown or recession in late medieval Europe in general: the Arte del Cambio's records of member banks record a drastic decline in membership such that the guild fell from 71 banks in 1399, to 33 in 1460, and then

15470-478: Was not at all concerned about the bank. Instead, he chose to concentrate his time and his family's resources on patronizing artists and pursuing his own poetic and political interests. Eventually, the Medici family's fiscal problems grew severe enough to force Lorenzo to begin raiding Florence's state treasuries, at one point defrauding the Monte delle doti , a charitable fund for paying for dowries . Shortly thereafter,

15600-426: 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,

15730-410: 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

15860-482: 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

15990-500: 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. 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

16120-520: Was that of a single partnership based in Florence, which immutably held the lion's share of shares in each branch (and the three textile factories in Florence), which were themselves incorporated as independent partnerships. At the end of the year on March 24 (by the then used calendar), each partnership would be dissolved, although the Medici could dissolve a partnership at any time with six months' notice. The books were thoroughly gone through and checked, and

16250-682: Was the Wars of the Roses , which rendered Edward IV unable to repay the loans (the best he could do in way of repayment was to lift all tariffs on the Medici exporting English wool until such time as the debt was repaid), and the branch had loaned far too much to the Lancastrian rebels (and not to a number of Yorkist loyalists), who would never repay their loans after their deaths and defeats. The London branch finished its liquidation in 1478, with total losses of 51,533 gold florins. The succeeding Tudors never paid off

16380-493: Was the bank that occupied the building until the 1960s. At that time, the bank moved near a strip mall at the edge of Stevensville and changed its name to Tidewater Bank. Tidewater Bank later merged with larger banks; in recent years it has been owned by Nations Bank and Bank of America . The Tidewater Bank building continues to serve as a Bank of America branch known as the Tidewater Branch. This article about

16510-658: Was the German Abel Kalthoff . A crucial distinction between the Medici Bank and its older rivals (the Peruzzi , the Bardi , the Acciaioli , etc.) was that its "decentralization" was not merely geographic: it was legal and financial. The Peruzzi bank was taken over by outsiders in 1331 because there was but one partnership , based in Florence and held largely by Peruzzi family members, which owned everything. The employees were only paid

16640-447: Was the Medici bank's most profitable period. With Cosimo's death on August 1, 1464, the decline of the bank began. 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

16770-432: 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

16900-413: Was undertaken too late. The bank's heavy leverage of their deposits meant that setbacks could be quite sudden. The fact that it seems to have been a common practice for Florentine banks to operate with as little as 5% of their deposits held in reserve lends further support to the idea that collapses could happen abruptly when bad loans were discovered. In addition to all of that, Lorenzo the Magnificent

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