Italian Financial Capitalism: The Birth of Modern Banking

Impelled by governments’ need for fast money to finance wars and elites’ desire for banking innovations, intensive debates on interest payments and usury restrictions significantly changed scholastics’ position on banking and money lending. Relaxing restrictions on money lending opened and facilitated the foundation of first big modern banks. In addition to the altering ideal landscape, changing governmental and wealthy citizens’ interests fostered banking innovations. Around the same time when first modern private banks emerged, first public and non-profit banks were founded. Hence the basic trinity of private, public and non-profit banks which dominates the European banking sector since it emerged in the medieval Italian City-States and in Catalonia. In addition, political and economic elites’ and leading economists’ view on banking changed significantly. Quite hostile toward all forms of banking and money lending at the beginning, changing economic and political conditions altered the elites’ view: political, economic, and even religious elites recognized the necessity of big-scale banking for economic progress and military success.