Though the States of Venice and Genoa made the most rapid advances in commerce, and established public banks, yet the department of banking appears to have fallen more particularly into the hands of the Florentines.
"As the Florentines did not (like the Venetians and the Genoese) possess any commodious seaport, their active exertions were directed chiefly towards the improvement of their manufactures and domestic industry. About the beginning of the fourteenth century, the Florentine manufacturers of various kinds, particularly those of silk and woolen cloth, appear, from the enumeration of a well-informed historian, to have been very considerable. The connections which they formed in different parts of Europe, by furnishing them with the productions of their own industry, led them to engage in another branch of trade, that of banking. In this they soon became so eminent, that the money transactions of almost every kingdom in Europe passed through their hands, and in many of them they were entrusted with the collection and administration of the public revenues. In consequence of the activity and success with which they conducted their manufactures and money transactions - the former always attended with certain though moderate profit, the latter lucrative in a high degree, at a period when neither the interest of money nor the premium on bills of exchange was settled with accuracy - Florence became one of the first cities in Christendom, and some of its citizens extremely opulent." (Robertson's "Disquisition on India.")
Cosmo di Medici of Florence was reckoned in his day the most wealthy merchant ever known in Europe, and in a treaty whereby Louis XI engaged to pay Edward IV fifty thousand crowns annually, it was expressly stipulated that the king of France should engage the partners of the Bank of Medici to become bound for the faithful and regular performance of this agreement on the part of himself and his heirs.
The Earliest National Banks. Although the business of banking has probably always been carried on by private individuals before it has been carried on by a public company, yet most countries have found it useful to establish a public or national bank. Some of these banks have been founded for the purpose of facilitating commerce, others to serve the government. The most ancient of these was founded at Venice.
The Bank of Venice. The first establishment of banking, in a regular and systematic form, took place at Venice about the middle of the twelfth century (1157); and it arose from the necessities of the state. Duke Vitale, Mitchel II, being involved in expensive wars with the Empire of the West, and the Grecian Manuel, embarrassed the finances of the republic; and to relieve it from the pressure of its difficulties, he had recourse to a forced loan, the contributors to which were made creditors, and received interest at the rate of four per cent per annum. The "Chamber of Loans" was established for the management of this fund, and regular payment of the interest; which, gradually improving its plan, at last formed itself into the more perfect institution of the Bank of Venice.
This celebrated bank served as a model to almost every similar establishment in succeeding ages; its capital was 5,000,000 ducats, or $4,800,000, for which the republic was security. It was, properly, a board of deposit, credit and interest. By an edict of the state, all payments of wholesale merchandise, and bills of exchange, were required to be made in banco, or bank notes; and all debtors were obliged to lodge their money in the bank, that their creditors might receive payment in banco; which was done by transferring the amount from the one to that of the other, or by writing off the sum from the account of the debtor, and placing it to that of the creditor. Payments were made in this manner without the intervention of gold or silver; but there were exceptions to this rule in cases of retail trade, or when foreigners wished to carry off the precious metals.
All the riches of the state thus flowed into the bank; and, through various channels, were again diffused among traders, to give activity to the extensive commerce of this once opulent and powerful city.
From its good faith, and the regularity of its transactions, the Bank of Venice always maintained a high character in Europe, and on some occasions, its obligations were more esteemed than the bonds of kings. This bank may well be deemed a wonder for the twelfth century, but required much alteration in methods to adapt it to the requirements of the nineteenth and twentieth centuries.
During two centuries and a half the Bank of Venice was unrivaled. The progress of human knowledge was slow and improvements in banking methods were long in coming.