Lombard banking

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The Moneychanger by Rembrandt, 1627

For other uses, see Lombard.

Lombard banking is a historical term for a pawn shop in the Middle ages, a type of banking that originated with the prosperous northern Italian region of Lombardy (hence the name).

The term was sometimes used in a derogatory sense as townspeople often accused lombards of usury. The lombards were never very popular for this reason and often had trouble with local governments. They were careful to write down all of the terms of contracts, to protect themselves, but that was no guarantee for success in times when few others could read and write, including local leaders.

[edit] History

Main articles: History of pawnbroking and Pawnbroker

Though Pope Leo forbade charging interest on loans by canon law, it was not forbidden to take collateral on loans. Pawn shops operate on the basis of a contract that fixes in advance the 'fine' for not respecting the nominal term of the 'interest free' loan. It is no surprise that the pawn shops of Rome were the most prosperous of all, especially in the 15th century under Popes Pius IV and Sixtus V. The Italian pawn shop method grew slowly from city to city, and became prevalent in Cahors, southern France, from where the Cahorsins moved as far North as Amsterdam in the 13th century, where they were called Cahorsijnen, Cawarsini or Coarsini.[1]

A Catholic prohibition on profit from money 'without working' made banking sinful. As no economy or money-based society can prosper without any credit, various ways around the prohibition were devised, such as a contract that stipulates no interest, but fixes in advance the 'fine' for not respecting the nominal term of the 'interest free' loan. Similar conventions exist in modern Islamic banking.

Lombards and others free of religious scruple, filled a gap in the market. A consequence of this has been the disproportionately large share of Jews in finance and the diamond market (diamonds being a lightweight alternative to gold). The near-monopoly position of the Jews in finance became less prominent as various Protestant factions after the Reformation relaxed the religious restrictions on banking. In the 18th century many bankers were Quakers.

In 1492 Ferdinand and Isabella of Spain signed a decree expelling all Jews who refused to be converted to Christianity. A considerable number moved into Portugal. Many members of the migrant Jewish community in Portugal proceeded to start lucrative pawn shops in commercially successful Portuguese port cities. Such pawn shops were necessary to finance shipping, but were banned for the natives for religious reasons. Because of the Italian Lombards already in Portugal, the Portuguese called these pawn shops "lombards", a term that was used throughout Europe as the lombards began to move from port city to city with the Spanish Inquisition and create international networks. In France the Lombards became synonymous with the Cahorsins. Most European cities still have a street named Lombard street after the pawn shop that once housed there. In Dutch, the name for a pawn shop is still lommerd, and the same etymology persists in the names of various banks (unless named after some family).

The religious restrictions made banking seem immoral and Lombard bankers were often considered to be undesirable company. These prejudices were the reason that banking families intermarried and kept to themselves, resulting in international dynasties of banking families. The story of Mary Poppins illustrates how banking was still considered immoral in the 20th century though by that time a perfectly respectable profession.

[edit] See also

Lombard Banking, or Lombard Bank Limited, are a British-based finance company, that specialise in loans and insurance. They are the largest finance house in the United Kingdom. Their subsidiaries include Lombard Direct and Lombard Network Services.