Raffaello Sanzio (Urbino 1483 – Rome 1520) Portrait of Leo X with the Cardinals Luigi de ‘Rossi and Giulio de’ Medici
Did you know that Lombard lending has a rich historical background that dates back to the Middle Ages? This financial practice originated in Lombardy, Italy, where the Lombards, a Germanic people, established a banking system that was based on the pledge of collateral. The historical significance of Lombard lending cannot be overstated, as it laid the foundation for the secured lending practices that we see today.
Banking is one of the oldest professions in the world dating back as far as 2000 BC when the Assyrian Empire began to practice lending and bookkeeping.
From this point onwards, banking began to crop up across the globe with various forms of accounting and money lending. However, historians agree that it was not until Renaissance Italy that the true roots of modern banking began.
Specifically, the cities of Florence, Venice and Genoa were where the most advanced banking practices were established, and the creation of the Medici Bank in 1397 was seen as the starting point for banking as we know it today.
The Papal States, the ruling territories in what is now modern-day Italy, at their prime, had vast amounts of art and gold at their disposal. However, they had a problem, as to fund wars and theological expansion, they required quick cash, and loans without interest. As the Catholic church banned usury, there was only one institution capable of meeting their needs – the Medici Bank.
The Medici Bank was a wealthy banking family, and at its peak, was considered the wealthiest family in Europe. Practices first used by the bank, such as double ledger accounting are still used to this day, and perhaps most importantly, the art of lending out more than they had in deposits.
When the Pope required loans, the Medici Bank would give the low rates he wanted. In return, the Pope would provide gold and art as collateral. If the Pope defaulted on his loans, the bank could instantly seize and sell the collateral. This structure proved successful and spread rapidly across northern Italy’s emerging banking sector. The Lombardy region, Milan and Genoa in particular, was becoming a hot spot of financing for merchants and the secured loan was a win-win for both. The bankers had less risk when lending to traders they wouldn't see for months on end, and the merchants kept more of their profits for themselves.
Due to this new wave of banking originating in Northern and Central Italy, such advanced banking at the time began to be referred to as ‘Lombard lending’ referring to the Lombardy region. The ‘Lombard’ term began to appear across Europe as a result – an example being our very own Lombard Street which houses the Bank of England.
Fast forward to the present day, and Lombard lending continues to be a popular and attractive option for clients seeking flexible liquidity solutions. While traditionally limited to clients with substantial wealth, innovative financial institutions like Firenze are revolutionising the Lombard lending landscape by offering loans starting from £65k. This democratisation of Lombard lending allows a broader range of clients to access flexible liquidity solutions that were previously out of reach.
If you’re interested in joining the journey and accessing Lombard lending for your clients – get in touch.
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