Merchant bank
Merchant banksbanks that specializeactivities that facilitate tradecommerce. Merchant banks, now so called,in factoriginal "banks". These were invented inmiddle ages by Italian grain merchants. AsLombardy merchantsbankers grewstature onback ofLombard plains cereal crops many ofdisplaced Jews who had fled persecutionSpain after 613 enteredtrade. They boughtthem tograin trade ancient practices that had grownnormalcy inmiddlefar east, alongsilk road, forfinancelong distance goods trades.The Jews could not hold landItaly, soenteredgreat trading piazzashallsLombardy, along sidelocal traders,set up their benchestradecrops.
They had one great advantage overlocals. Christians were strictly forbiddensinusury). WhereasJewish newcomers could lendfarmers against crops infield,high risk loan at what would be considered usurous rates byChurch. In this waycould securegrain sale rights againsteventual harvest.
They then beganadvance againstdeliverygrain shippeddistant ports.
In both casesmade their profit frompresent discount againstfuture price. This two handed trade was time consumingsoon there aroseclassmerchants were no longer trading grain, butits stead, were trading grain debt.
It wasshort step from financing trade on their own behalfsettling tradesothers,thenholding depositssettlement"billete" or notes writtenpeople who were still brokeringactual grain. And somerchant's "benches" (bank iscorruption ofItalianbench, as incounter) ingreat grain markets became centresholding money againstbill (billette,note,letterformal exchange, laterbillexchange, later still,cheque).
These deposited funds were intendedbe held forsettlementgrain trades, but often were used forbench's own trades inmeantime. The term bankrupt iscorruption ofItalian banca rotta, or broken bench, whichwhat happened when someone lost his traders' deposits. Being "broke" hassame connotation.
There soon developedsensible mannerdiscounting interest todepositors against what could be earned by employing their money intrade ofbench;short, selling an "interest"them inspecific trade, thus overcomingusury objection. Once again this merely developed what was an ancient methodfinancingdistance transportgoods.
Islamic banking hassame constraints against usury as Christianityfromsame old testament notions. It will be interestingsee if, as Islam agesmatures,relaxes its insistence that money cannot be earned from deposits held as debt.
The medieval Italian markets were disrupted by warsin any case were limited byfractured nature ofItalian states. And sonext generationbankers arose from migrant Jewish merchants ingreat wheat growing areasGermanyPoland. Manythese merchants were fromsame families who had been part ofdevelopment ofbanking processItaly. They also had linksfamily members who had, centuries before, fled Spainboth ItalyEngland.
This courseevents setstage forrisebanking names which still resonate today: Schroders, Warburgs, Rothschilds, evenill-fated Barings, were allproduct ofcontinental grain trade,indirectly,early Iberian persecutionJews.
