Medici Bank (1397): How a Florentine Family Built a Fortune

The Medici Bank was founded in Florence in 1397 by Giovanni di Bicci de’ Medici and became, for most of the 15th century, one of the largest and most respected businesses in Europe. Its profits, drawn above all from serving the papacy, paid for the Medici family’s rise to political control of Florence and for much of the art of the early Renaissance. The bank’s story shows how commercial wealth could be turned into power in a city that called itself a republic.

Background: Florence and its bankers

In the 14th century Florence was one of the richest cities in Europe, built on the wool cloth trade and on international banking. Its gold coin, the florin, first struck in 1252, was accepted across the continent. Florentine companies such as the Bardi and the Peruzzi lent huge sums to kings, including Edward III of England, and both failed in the 1340s when loans went unpaid.

The Black Death struck the city in 1348 and killed perhaps half or more of its people. In the decades that followed, a new generation of merchant families rebuilt Florentine commerce. Among them were the Medici, a family of modest standing that had produced some officials and money-changers but no great fortune.

Founding the bank

Giovanni di Bicci de’ Medici was born around 1360. As a young man he worked for a bank run by a distant relative, Vieri di Cambio de’ Medici, and managed its branch in Rome. When Vieri retired, Giovanni took over the Rome business, and in 1397 he moved his headquarters to Florence. The historian Raymond de Roover, whose study of the bank’s surviving account books remains the standard work, dates the founding of the Medici Bank to that year.

The new firm was a partnership. Giovanni supplied most of the capital, and partners such as Benedetto de’ Bardi contributed money and skill. The bank was registered with the Arte del Cambio, the bankers’ guild of Florence. Alongside banking, the family invested in workshops producing wool and, later, silk cloth.

How the business worked

The core of the business was the bill of exchange. A merchant in Bruges, for example, could pay money to the Medici branch there and receive a document that allowed a partner to collect an equivalent sum in Florence or Rome some weeks later, in another currency. The bank profited on the exchange rates. Because the Church condemned usury, or interest on loans, this kind of exchange transaction let bankers earn returns without openly charging interest.

Over time the bank opened branches across Europe: Rome, Venice from 1402, Geneva (later moved to Lyon), Bruges, London, Avignon, Pisa and Milan. Each branch was a separate partnership with a local manager who held a share of the profits, while the Florentine head office kept a controlling stake. This structure, somewhat like a modern holding company, limited the risk that one failing branch would bring down the whole firm.

The managers kept careful accounts, using the double-entry bookkeeping already common among Italian merchants. Much of what is known about the bank comes from these records and from the tax returns the Medici filed in Florence.

The papal connection

The Medici’s greatest client was the papacy. During the Western Schism, when rival popes competed for recognition, Giovanni backed Baldassare Cossa, who became the Pisan pope John XXIII in 1410. The Medici served as bankers to his treasury, handling the flow of church taxes and fees from across Christendom.

John XXIII was deposed by the Council of Constance in 1415, the same council that condemned the Bohemian reformer Jan Hus (see the execution of Jan Hus). Giovanni stayed loyal; after Cossa’s death in 1419 the Medici paid for his tomb in the Baptistery of Florence, made by Donatello and Michelozzo. The bank soon won the business of the new pope, Martin V, and for long periods afterwards the Rome branch was the most profitable part of the company.

From wealth to power

Giovanni kept a low political profile, although he served as gonfaloniere of justice, the city’s highest office, in 1421. He also became a patron of building, supporting the Foundling Hospital and the rebuilding of the church of San Lorenzo, both designed by Filippo Brunelleschi, the architect of the cathedral dome. He died in 1429, leaving the bank to his son Cosimo.

Cosimo de’ Medici used the bank’s wealth to build a network of allies through loans, marriages and favours. His rivals, led by the Albizzi family, had him exiled in 1433, but he returned in triumph in 1434. From then until his death in 1464 Cosimo was the effective ruler of Florence, although he held office only occasionally and the republican institutions remained in place. The bank reached its greatest size in the 1450s.

Decline and collapse

Under Cosimo’s son Piero and grandson Lorenzo, known as Lorenzo the Magnificent, the bank weakened. Lorenzo was more interested in politics and patronage than in business. Branch managers made large loans to rulers that were never repaid: the London branch lent heavily to Edward IV during the Wars of the Roses, and the Bruges manager Tommaso Portinari lent to Charles the Bold, Duke of Burgundy, who was killed in battle in 1477. Several branches closed with heavy losses.

The attack on the family in the Pazzi Conspiracy of 1478, backed by Pope Sixtus IV, also cost the bank its papal business for a time. In 1494, two years after Lorenzo’s death, the Medici were driven out of Florence, and the bank’s remaining assets were seized. The family later returned and produced two popes, Leo X and Clement VII, and the grand dukes of Tuscany, but the bank itself was never revived.

Myths and facts

Myth: the Medici were the richest bankers in medieval Europe. At its height the Medici Bank was large, but the Bardi and Peruzzi companies of the early 14th century had been bigger, and the German Fugger family of the 16th century would far surpass them. The Medici stood out for the length of their success and for converting money into political power.

Myth: the Medici invented modern banking methods. Bills of exchange, deposit banking and double-entry bookkeeping were all in use among Italian merchants before 1397. The Medici applied them with unusual discipline and built a branch system that spread risk.

Myth: the Medici balls on their coat of arms show coins or pills. The family arms showed red balls, or palle, on a gold field, but their origin is unknown. Stories linking them to pawnbrokers’ signs, doctors’ pills or a giant’s club are later legends.

Fact: the bank’s wealth paid for art. Cosimo de’ Medici alone spent large sums on building and restoring churches, convents and libraries, including San Marco and San Lorenzo, partly, contemporaries believed, to ease his conscience about wealth gained through finance.

Timeline

• 1252: Florence strikes its first gold florin.
• c. 1360: Giovanni di Bicci de’ Medici is born.
• 1397: Giovanni establishes the Medici Bank with its headquarters in Florence.
• 1402: a branch opens in Venice.
• 1415: the Council of Constance deposes John XXIII, the Medici’s papal client.
• 1429: Giovanni dies and Cosimo takes over the bank.
• 1434: Cosimo returns from exile and becomes the leading figure in Florence.
• 1478: the Pazzi Conspiracy kills Giuliano de’ Medici.
• 1494: the Medici are expelled from Florence and the bank collapses.

Why it matters

The Medici Bank showed how a well-organised banking network could gather wealth from across Europe and turn it into political power at home. That wealth paid for buildings, paintings and scholarship that shaped the Florentine Renaissance, and the bank’s account books remain one of the best sources for how late medieval international finance actually worked.