CryptossorCryptossor
  • Home
  • News
    • Global
    • Bitcoin
    • DeFi
    • Cryptocurrency
    • Economy
  • Technology
  • Contact
Facebook Twitter Instagram
Subscribe
CryptossorCryptossor
Twitter
  • Home
  • News
    1. Global
    2. Bitcoin
    3. DeFi
    4. Cryptocurrency
    5. Economy
    6. View All

    Investors Seek Refuge in Cash as Recession Fears Mount, BOFA Survey Reveals

    Mayıs 18, 2023

    Report: Well Known Crypto Firms Still Not Adhering to Basic Governance Standards

    Mayıs 18, 2023

    EU Council Adopts New Rules for Europe’s Crypto Markets

    Mayıs 18, 2023

    BRICS to Strengthen Economic Cooperation — Sherpa Calls for Increased Trade in National Currencies

    Mayıs 18, 2023

    Bitcoin Billionaire: This Platform Could Crash! But Like FTX..

    Ocak 11, 2023

    Tomorrow is Critical Day for Bitcoin: 5 Analysts Are Waiting For These!

    Ocak 11, 2023

    2 Important Charts Say ‘Buy’ This Cryptocurrency!

    Ocak 11, 2023

    Major Cryptocurrency Exchange Announces: Terminating!

    Ocak 11, 2023

    Defrost Finance Team Calls Rug Pull Claims Slander

    Aralık 30, 2022

    Arab Bank Switzerland Presents 10 DeFi Tokens to Customers

    Ocak 7, 2022

    Celsius Network Confirms They Lost Money In BadgerDAO DeFi Attack

    Aralık 3, 2021

    SEC Chairman Gary Gensler Speaks About DeFi

    Aralık 1, 2021

    Bitcoin Price Predictions for 2023 from the Professionals

    Ocak 11, 2023

    Why Is Bitcoin Price Rising? Will the Ascension Continue?

    Ocak 11, 2023

    Iceberg Capital Launches $1 Billion Fund with Venom Foundation

    Ocak 11, 2023

    What is Flare (FLR)? Flare Token Price and Comment

    Ocak 11, 2023

    The end of the road has appeared for the Plus model of the Samsung Galaxy S series! So what’s the reason?

    Ocak 11, 2023

    Mortgage applications increase in the USA, interest rates decrease

    Ocak 11, 2023

    The expectation for the future of the economy is getting worse: The rate of those who have negative expectations about the economy has increased from 50 percent to 71 percent.

    Ocak 11, 2023

    Economists hope lifting of China’s COVID bans will boost 2023 growth better than expected

    Ocak 11, 2023

    Investors Seek Refuge in Cash as Recession Fears Mount, BOFA Survey Reveals

    Mayıs 18, 2023

    Report: Well Known Crypto Firms Still Not Adhering to Basic Governance Standards

    Mayıs 18, 2023

    EU Council Adopts New Rules for Europe’s Crypto Markets

    Mayıs 18, 2023

    BRICS to Strengthen Economic Cooperation — Sherpa Calls for Increased Trade in National Currencies

    Mayıs 18, 2023
  • Technology
  • Contact
CryptossorCryptossor
Home»Altcoin»The Fall of Medici Bank: Lessons on Fractional Reserve Banking From 15th Century Italy
Altcoin

The Fall of Medici Bank: Lessons on Fractional Reserve Banking From 15th Century Italy

cryptossorBy cryptossorNisan 16, 2023Yorum yapılmamış5 Mins Read
Facebook Twitter Pinterest LinkedIn Reddit WhatsApp Email
Share
Facebook Twitter Pinterest Reddit WhatsApp Email



The Fall of Medici Bank: Lessons on Fractional Reserve Banking From 15th Century Italy

Amid the banking chaos of the 21st century, some are looking back more than 600 years ago, to the Medici Bank — one of the most powerful banks of its time. It established its business and became one of the most respected banks in Europe during its prime, and the prominent Italian family of bankers were early adopters of fractional reserve banking, a practice that Medici Bank customers were unaware of, and that ultimately led to the financial institution’s failure.

‘Nothing New’— How the Medici Bank Failure Is Still Very Relevant to Today’s Modern Banking Practices

The collapse of three major banks in mid-March 2023 has caused people to scrutinize the risks of fractional reserve banking. The practice of fractional reserve banking is essentially when a financial institution holds only a fraction of deposits in the bank, and the remaining funds are used to lend or invest in order to obtain a yield. One of the earliest known examples of fractional reserve banking was the Medici Bank, founded in Florence, Italy, in 1397 by Giovanni di Bicci de’ Medici.

In the first five years of operation, the Medici Bank grew rapidly, and before the financial institution’s demise, it established branches all over Western Europe. Similar to bankers in the early 20th century like J.P. Morgan, Jacob Schiff, Paul Warburg, and George F. Baker, members of the House of Medici were extremely powerful. The Medici Bank was known to be one of the largest business enterprises during the Renaissance but ultimately failed after close to 100 years of operation.

Philip J. Weights, the president of the Swiss Finance and Technology Association (SFTA), explained in a 2015 Linkedin post how the weight of “excessive lending” and “insufficient reserves” led to the bank’s ultimate demise. According to Raymond De Roover’s book “The Rise and Decline of the Medici Bank (1397-1494),” published in 1963, liquidity was an issue from the bank’s inception. De Roover’s book details that the Medicis’ reserves held less than 10% of deposits due to the family members’ managerial abilities.

The 380-page book explains how the Medici Bank experienced a period of decline between 1463 and 1490 due to shady and corrupt banking practices. The fraudulent schemes caused several Medici branches to be liquidated and sold off to other banks. De Roover argued that despite being a prominent member of the House of Medici and a successful banker, Francesco Sassetti “was unable to avoid the disastrous liquidation of the Bruges, London, and Milan branches.” De Roover’s book notes that significant lending was a popular practice that gathered high-interest rates.

Florins, gold coins minted by the Republic of Florence, were often held on the Medici Bank balance sheet. However, the lack of reserves was a constant source of frustration for both Medici banking partners, and government officials and customers. In a 2018 editorial on bigthink.com, author Mike Colagrossi detailed that “it was due to advancements and financial solutions like these that the Medici bank became so powerful” as the Medicis received high interest on loaned payments. Colagrossi notes that the downfall of the bank took place after the death of Cosimo Medici in 1464, who was the bank’s boss at the time.

After the fall of three major banks in 2023, Jim Bianco, president of Bianco Research, a firm that specializes in macro analysis for institutional investors, explained how fractional reserve banking “was invented by the Medicis in Florence in the late 15th century.” In his Twitter post, Bianco also mentions the “tuppence” scene in the 1960s Disney musical film “Mary Poppins” and the bank run scene from “It’s a Wonderful Life” filmed in the 1930s, stating that “all of these are still very relevant depictions of what is happening today.”

Bianco opined:

Nothing that is happening is new. Our banking system is several hundred years old and has constantly had these issues.

Triple-Entry Bookkeeping — A New System of Accounting

Bianco also mentioned that double-entry bookkeeping was the “technology” used to enable the Medici Bank’s fractional reserve banking practices. The double-entry scheme involves a ledger that records both debits and credits and is still used in the modern financial world today. At the time, the Franciscan Friar Luca Pacioli wrote a book about double-entry accounting with help from the well-known Renaissance artist Leonardo da Vinci. Although Pacioli and da Vinci did not claim to invent the new system, their research led to the wider and more structured use of double-entry bookkeeping that’s still used today.

Soon after the method was popularized, Giovanni de Medici implemented the concept into his family’s bank. It allowed the House of Medici to operate with less than 10% of deposits and extend its lending practices far and wide until liquidity completely dried up. More than 600 years later, an anonymous person or group released a paper that introduced the concept of triple-entry bookkeeping. In addition to records of both debits and credits, a third component was added, which is a cryptographic receipt verified by a third party to validate the ledger’s entries.

Satoshi Nakamoto’s invention has produced a system where a double-entry bookkeeping system doesn’t need to be trusted now that an improved ledger accounting scheme exists. A single-entry or double-entry accounting system can be forged and manipulated, but the cryptographic assurance from a triple-entry bookkeeping system is much harder to add fraudulent data to. While Bianco is correct that there is nothing new with the way bankers operate today, compared to the days of Medici, Nakamoto’s invention has given the world a new method of accounting that can transform it a great deal, just as the invention of double-entry bookkeeping has done.

What lessons can be learned from the fall of the Medici Bank? Share your thoughts in the comments section below.





Source link

Share. Facebook Twitter Pinterest LinkedIn WhatsApp Reddit Email
Previous ArticleWith Close to 10 Billion Stablecoins Redeemed, BUSD’s Supply Drops to Lowest Level Since April 2021
Next Article CBDC Debate Heats Up: BIS Project Sparks Controversy Among Critics; Lynette Zang Warns of Dangers of CBDCs
cryptossor
  • Website
  • Twitter

The most realistic News Of The Crypto [email protected] https://twitter.com/cryptossorcom

Related Posts

Investors Seek Refuge in Cash as Recession Fears Mount, BOFA Survey Reveals

Mayıs 18, 2023

Report: Well Known Crypto Firms Still Not Adhering to Basic Governance Standards

Mayıs 18, 2023

EU Council Adopts New Rules for Europe’s Crypto Markets

Mayıs 18, 2023

BRICS to Strengthen Economic Cooperation — Sherpa Calls for Increased Trade in National Currencies

Mayıs 18, 2023

146 Top Executives Urge Biden to Prevent US Default — Warns of ‘Disastrous Consequences’

Mayıs 17, 2023

Axie Infinity Origins Breaks Through Apple’s App Store Barrier, Now Accessible to Select iOS Users

Mayıs 17, 2023
Add A Comment

Leave A Reply Cancel Reply

Top Posts

Subscribe to Updates

Get the latest sports news from SportsSite about soccer, football and tennis.

Advertisement
Our Picks
  • Facebook
  • Twitter
  • Pinterest
  • Instagram
  • YouTube
  • Vimeo
Don't Miss
Altcoin

Investors Seek Refuge in Cash as Recession Fears Mount, BOFA Survey Reveals

By cryptossorMayıs 18, 2023

Investors, plagued by mounting pessimism, have sought refuge in cash, according to a recent survey…

Report: Well Known Crypto Firms Still Not Adhering to Basic Governance Standards

Mayıs 18, 2023

EU Council Adopts New Rules for Europe’s Crypto Markets

Mayıs 18, 2023

BRICS to Strengthen Economic Cooperation — Sherpa Calls for Increased Trade in National Currencies

Mayıs 18, 2023

Subscribe to Updates

Get the latest creative news from SmartMag about art & design.

Facebook Twitter Pinterest

Type above and press Enter to search. Press Esc to cancel.