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The Medici Bank (Italian: Banco Medici) was a financial institution created by the Medici family in Italy during the 15th century (1397–1494). It was the largest and most respected bank in Europe during its prime.There are some estimates that the Medici family was, for a period of time, the wealthiest family in Europe.A notable contribution to the professions of banking and accounting pioneered by the Medici Bank was the improvement of the general ledger system through the development of the double entry system of tracking debits and credits or deposits and withdrawalsGiovanni di Bicci de’ Medici was the first Medici to enter banking on his own, and while he became influential in the Florentine government, it was not until his son Cosimo the Elder took over in 1434 as gran maestro that the Medici became the unofficial head of state of the Florentine republic.(VLADA)During the early Middle Ages the Medicis had small plots of land in the Mugello valley (along the Sieve river) near Florence. In the 12th and 13th centuries. several of their representatives moved to Florence, and by 1300 the Medicis entered the government and the guild changed. In the 14th century. in Florence was a lot of Medici: in 1373 one of the representatives of the family lamented the fact that as a result of the epidemic of plague in the family there were only 50 adult men. Not surprisingly, there were significant property differences between them: some succeeded and advanced in the city for the first roles, others were shopkeepers and artisans. However, even the most affluent of the Medici, although sometimes married to representatives of the social and economic elite, neither riches nor status rose to the level of well-known banking and trading houses of the time, such as Bardi or Peruzzi. At the opposite end of the social ladder, there were criminals and bandits among the Medici. So, in 1343-1360 five Medicis were sentenced to death for various (from robberies to murders) crimes. This created a bad reputation for the whole family, which, of course, did not improve from the fact that its representatives often started litigation with each other.Such a reputation and lack of unity prevented the Medici family from playing any significant role in the management of Florence at this time. The only exception was Salvestro de Medici (1331-1388). The fact that the Medicis belonged to the city’s “outsiders”, you can conclude at least by the fact that Salvestro, a member of the prosperous top of the senior guilds, has solidified with younger ones, such as chompi (carded wool). His election as gonfalonier (head of the magistrate) in 1378, which was a victory for the representatives of the lower classes, provoked the so-called. “The uprising chompi,” an attempt to ensure greater participation of the lower classes in the administration. However, the movement was soon suppressed, and within the next three years the senior guilds regained their positions, and Salvestro was forced to go into exile.Distrust of the Medici family, only strengthened as a result of the actions of Salvestro, indirectly affected the rise of that branch of the genus, which later received European fame. Since the Medicis were burdened with suspicions of political unreliability and they were forbidden to hold public office, they turned all their energy to entrepreneurship. Famous in the history of the Medici – the descendants of Averardo de Medici (surnamed Bicci), a distant relative of Salvestro. In the second half of the 14th century. the affairs of Averardo flourished, and under the guidance of his son Giovanni di Bicci (1360-1429) the family enterprise involved, along with the production of silk and fabrics, banking operations and had branches throughout Europe. In 1421 Giovanni was elected Gonfalonier.Giovanni di Bicci had two sons – Cosimo (1389-1464) and Lorenzo (1394-1440); with Cosimo and the political career of the family began. Of his two sons, Giovanni (1424-1463) was considered more talented, but he died before his father. After the death of Cosimo, the head of the genus became Pierrot (1416-1469), who, despite the hardest gout, showed unexpected energy in the struggle against attempts to deprive the family of political weight. Of two sons, Piero Jr., Giuliano (1453-1478), was killed as a result of Pazzi’s conspiracy, and the elder Lorenzo (1449-1492), nicknamed il Magnifico (Magnificent), retained the leading position in Florence for his family. He can be considered the most brilliant of all the Medici.Portrait of Lorenzo di Piero de Medici (author Agnolo Bronzino)The successor to Lorenzo after his death was Pierrot’s eldest son (1471-1503), but with his arrogance he pushed away most of the Florentine patriciate. When Italy was threatened with a French invasion, Pierrot took the side of the enemies of France, and so after the French troops actually entered Italy in 1494, the entire Medici family had to flee Florence. Pierrot was declared a tyrant, and a reward was given for his head.The Medici regained their positions in Florence, mainly due to the political talents of Giovanni (1475-1521), the second son of Lorenzo. Lorenzo managed to make Giovanni Cardinal, and he, despite his youth, managed to win the confidence of Pope Julius II. In 1511, between the Republic of Florence, on the one hand, and the Pope and the Spaniards, on the other, a conflict erupted. The struggle ended in the defeat and surrender of Florence, and one of the conditions exposed by the victors, thanks to the influence of Giovanni (1512), was the return to the city of the Medici. Further control of the Medici over Florence intensified, since in 1513, after Julius II was no more, Pope under the name of Leo X was elected Giovanni.When the Medici returned to Florence as its rulers, only the four descendants of Cosimo remained alive. Two of them belonged to the spiritual rank – Pope Leo X and Cardinal Giulio (1478-1534), son of Giuliano, brother of Lorenzo the Magnificent (later became Pope Clement VII). So all the hopes for the continuation of the family were associated with the youngest son of Lorenzo the Magnificent Giuliano (1478-1516) and with the only son of the eldest son Lorenzo Piero, also bearing the name Lorenzo (1492-1512). Giuliano, Duke of Nemours, a painful man who did not show any noticeable political ambitions and abilities, soon died (1516). Lorenzo, whom Leo X had already made Duke of Urbino, unexpectedly died in 1519, leaving his only daughter Catherine. The famous tombs of the Medici of Michelangelo’s work were erected in memory of these two untimely departed representatives of the family.The two remaining representatives of this branch of the Medici, Leo X and Cardinal Giulio, could not allow the thought that the descendants of Cosimo the Elder would not rule Florence. Therefore, they settled in the palace of the Medici of two young people, Ippolito and Alessandro, and brought them up as heirs of the family. Ippolito (1511-1535) is the illegitimate son of Giuliano, Duke of Nemours, while Alessandro (1510-1537) was declared the illegitimate son of Lorenzo, Duke of Urbino. However, it always seemed plausible that Alessandro, to whom Cardinal Giulio gave a clear preference, was his illegitimate son. Becoming Pope Clement VII, he made Hippolytus cardinal against his will, thereby depriving him of hopes of coming to power in Florence.When the last republican uprising in Florence was defeated, the city surrendered to the pope, after which Clement VII planted Alessandro in Florence as the hereditary duke (1532) and abolished the former constitution. This became possible as a result of the union of the pope with the emperor Charles V; their alliance secured the marriage of Alessandro to Margarita, the illegitimate daughter of Charles V, cemented their union. Supported by the forces of the empire, Alessandro relied on brute force; cruel and vicious, he evoked general hatred. But in 1537 he was killed by his own friend, who invariably participated in his hideous antics, and a distant relative – Lorenzino de Medici, who, perhaps, considered himself the second Brutus, intended to free the city from the tyrant. (This story formed the basis of the drama Lorenzaccio (Alfred Musset).)The Grand Dukes of Tuscany.The most prominent citizens of Florence felt that after the death of Alessandro, it was impossible to restore the republic, since this would have made the emperor a sworn enemy of the city. Therefore, the representative of the younger branch of the Medici family, the descendant of Lorenzo, younger brother Cosimo the Elder, became the duke of Florence under the name Cosimo I (1519-1574). He founded a dynasty, whose representatives ruled Tuscany as grand dukes back in the 18th century. and combined marriage ties with almost all the august houses in Europe.The Medici Bank was the largest business organization of its time. He carried out operations in Western Europe and the Middle East and had agency connections in the territory from Iceland to China. Multilateral and diverse activities of the bank included the provision of financial services, wholesale distribution, mining and production. At the peak of the power of the Medici Bank, its annual gross turnover exceeded the corresponding figure of most European countries.Only these achievements have added wonderful pages to the history of the Medici Bank. It should not be forgotten that about six centuries ago, when all this was happening, there were no computers, no telecommunications equipment, no printers, no internal combustion engines, and no modern office equipment that surrounds the head. Complex financial calculations were made using ordinary accounts and recorded on parchment or coarse paper. The process of transferring information depended on the speed of movement of the messenger and his horse.There is an opinion that big business, problems of corporate management and control are exclusively modern phenomena. However, the example of the Medici bank shows that business of an international scale can be built even in the conditions of primitive management.The employee of the Medici Bank had to solve the problems of coordination and control, which were not very different from those that we face today; nevertheless, they did it without owning modern technologies.Cosimo de Medici: the genius of entrepreneurshipBy the time when in the XV century the Medici bank reached its heyday, it was already quite an old firm. The bank was founded around 1200 in Florence and specialized in providing loans and issuing cash loans on bail. It flourished until the middle of the fourteenth century, until it collapsed as a result of economic depression and political unrest. However, luck again smiled at him: a little later, at the end of the same century Giovanni di Bicci de Medici was able to improve matters. He was a smart financier, who created a stable portfolio of banking customers.Thanks to the skillful leadership of Giovanni’s son, Cosimo de ‘Medici, the bank reached the top. Cosimo was born in 1389, educated at the monastic school of Santa Maria del Angeli in Florence, where, among other things, he studied foreign languages: German, French, Greek and Arabic. He was fond of philosophy and art. In 1414 Cosimo began to work in the family business as an apprentice and for the first two years mastered the basics of doing business. Already in 1416 he was appointed CEO of the most important branch of the bank – in Rome. It was in the Roman branch that later talented managers were often appointed who moved up the career ladder, which gave them a chance to prove that they have professional abilities. In 1419 Cosimo was recalled to Florence and became a member of the Maggiore – a board of senior partners who controlled the work of the Medici Bank. In the early 20-ies of the XV century, his father retired and Cosimo took over as head of business.Under the control of Cosimo, the Medici Bank began to expand. First, branches were opened in Northern Europe, then in the Middle East and North Africa, later – four branches in Italy (in Rome, Milan, Pisa and Venice) and branches in Geneva (later it will be transferred to Lyon), Avignon, Bruges and London. Agency connections were established in Spain and several ports of the eastern Mediterranean; it should be especially noted the huge pepper market in Alexandria. Agents of the Medici worked in Scandinavia and Iceland, buying there furs, fish and lard. Their client network stretched from the Middle East through the Way of spices to the Far East.Business has become more diversified: a large-scale production of woolen and silk fabrics has developed. One of the important steps was the development of the deposit of alum – a scarce raw material, which was used as a fixer for the coloring of tissues, and was also a part of the medicinalth preparations. Initially, everything was built on elementary vertical integration, which allowed the bank to better control the scarce resource needed for dyeing shops in weaving. By the middle of the XV century, the Medici Bank was already the main player in its field and organized a cartel that actually monopolized the extraction of tannic alum and their processing in Europe.Banking activities also became more diverse, and by the middle of the century the bank was already involved in international currency transactions, insurance activities, investment management, venture capital and direct loans. All the old taboos imposed on usury, by that time disappeared. Can it be sinful to issue a loan if the Pope himself became the main client? The vast geography of business activity helped to attract the bank to participate in international trade, although usually he was more involved in financing transportation than their organization.Structure and complexityBy the beginning of the 30s of the 15th century, the Medici business was becoming more complex in structure. In order to simplify business management, Cosimo restructured it by creating three divisions that were controlled by a holding company managed directly by Cosimo and his general managers. Two divisions engaged in production: one – silk, the other – wool; The latter also controlled the extraction of alum. The third worked in the field of finance and international trade and, in turn, was divided into several divisions: Tavola, the bank’s main office in Florence and the eight major overseas offices mentioned above. These units to some extent interacted with each other, but financially and structurally they were only responsible to the holding company.Painful for any business in the Middle Ages and the Renaissance was the problem of coordination and control. How could you focus your business on the set goals, not to mention the prevention of fraud and wrong steps in business, when the correspondence between the structural units of the organization took days and sometimes weeks? The answer was: to ensure that managers who occupy responsible positions perceive the goals of the organization as their own. The best method for solving this problem was to transfer part of the profits to them.In the medieval business, the partnerships had a long history of development and by the beginning of the Renaissance they had become widespread. In a very volatile business environment, the partnerships performed many functions. They could be used to distribute financial risks, quickly accumulate capital, and also to concentrate activities on the realization of common goals. Usually a new venture was created as a partnership of two or more investors, and often the same group of investors founded a number of partnerships involving different partners. This made it possible to reduce the degree of risk; even if one of the partnerships crashed, others managed to avoid it. The partnerships were created for a short period of time, usually for two years, after which they could be resumed, resold or dissolved, depending on the partners’ wishes. The latter did not always make their capital: sometimes the entry fee was technical skills or market knowledge. If you look at this point of view, you can state that the big business in the Middle Ages and the Renaissance was more like organizations with a flexible network structure of the late XX century than corporations with a rigid vertical structure of the beginning of the same century.

Categories: Accounting


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