Lombard banking
Encyclopedia
Lombard banking refers to the historical use of the term 'Lombard' for a pawn shop in the Middle Ages, a type of banking that originated with the prosperous northern Italian region of Lombardy. The term was sometimes used in a derogatory sense and some were accused of usury
.
forbade charging interest on loans
by canon law
, it was not forbidden to take collateral on loans. Pawn shops thus operate on the basis of a contract that fixes in advance the 'fine' for not respecting the nominal term of the 'interest free' loan, or alternatively, may structure a sale-repurchase
by the 'borrower' where the interest is implicit in the repurchase price. Similar conventions exist in modern Islamic banking
. Various ways around the prohibition were devised, so that the lowly pawnshop contractors could bundle their risk and investment for larger undertakings. Christianity and Judaism generally ban usury, but allow usury towards heretics
. Thus Christians could lend to Jews and vice versa. The only real necessity for a young man who desired a future in the financial world of the Middle Ages was the ability to read and write; the methods used for bookkeeping were carefully kept within families and slowly spread along trade routes. Therefore, this knowledge was available most readily to Jesuits and Jews, who consequently played a major role in European finance. Generally the Jesuits took the role of go-between with heads of state, while the Jews manned the low-end pawnshops. This explains the disproportionately large share of Jews in the goldsmith trade and early diamond market (diamonds being a lightweight alternative to gold).
It comes as 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. This Italian 'Lombard' pawn shop method became famous. The use of the term 'Lombard' for pawn shop grew slowly from city to city, and became prevalent in Cahors
, southern France
, from where the Christian Cahorsins moved as far North as London and Amsterdam in the 13th century; at the latter, they were called Cahorsijnen, Cawarsini or Coarsini.
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 become wealthy in commercially successful Portuguese port cities. Being forced on the move, Jewish families remained mobile and quickly developed international family agencies for growing brokerage houses involved with shipping. Such family networks of mobile Jewish "lombards" migrated from port city to city with the Spanish Inquisition and created 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 resided 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). In Polish
and Russian
, a pawn shop is called simply lombard.
became just as persecuted as the Jews. In the 18th century many bankers and shipping agents were Quakers. Though the pawnshops were no longer manned by Jews and/or Jesuits, they were more and more often called Lombard houses, and most major port cities still have a 'Lombard Street
' or 'Lombard Ally' today. American examples are San Francisco, New Orleans, Boston
, Baltimore
, and Philadelphia. The term 'Lombard' for pawnshop (or pawnshop owner) was in use well into the late 18th century, thus many of these streets were named with the establishment of shipping agents in those towns.
is still commonly used in central banking, where central bank
s lend against marketable securities, such as government bond
s. Modern repo
(repurchase-sale transactions) are also forms of Lombard lending: one bank sells marketable securities to another (at a discount), with an agreement to repurchase the securities (typically at par) in a fixed period of time. Although the legal documentation of the transaction is that of a sale and subsequent repurchase, the substance of the transaction is a secured loan (and under most accounting standards, will be treated as a loan). Pawn shops in many countries and languages are often still referred to as Lombards.
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
.
History
A Christian prohibition on profit from money 'without working' made banking sinful. Though Pope Leo the GreatPope Leo I
Pope Leo I was pope from September 29, 440 to his death.He was an Italian aristocrat, and is the first pope of the Catholic Church to have been called "the Great". He is perhaps best known for having met Attila the Hun in 452, persuading him to turn back from his invasion of Italy...
forbade charging interest on loans
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...
by canon law
Canon law
Canon law is the body of laws & regulations made or adopted by ecclesiastical authority, for the government of the Christian organization and its members. It is the internal ecclesiastical law governing the Catholic Church , the Eastern and Oriental Orthodox churches, and the Anglican Communion of...
, it was not forbidden to take collateral on loans. Pawn shops thus operate on the basis of a contract that fixes in advance the 'fine' for not respecting the nominal term of the 'interest free' loan, or alternatively, may structure a sale-repurchase
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
by the 'borrower' where the interest is implicit in the repurchase price. Similar conventions exist in modern Islamic banking
Islamic banking
Islamic banking is banking or banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money...
. Various ways around the prohibition were devised, so that the lowly pawnshop contractors could bundle their risk and investment for larger undertakings. Christianity and Judaism generally ban usury, but allow usury towards heretics
Heresy
Heresy is a controversial or novel change to a system of beliefs, especially a religion, that conflicts with established dogma. It is distinct from apostasy, which is the formal denunciation of one's religion, principles or cause, and blasphemy, which is irreverence toward religion...
. Thus Christians could lend to Jews and vice versa. The only real necessity for a young man who desired a future in the financial world of the Middle Ages was the ability to read and write; the methods used for bookkeeping were carefully kept within families and slowly spread along trade routes. Therefore, this knowledge was available most readily to Jesuits and Jews, who consequently played a major role in European finance. Generally the Jesuits took the role of go-between with heads of state, while the Jews manned the low-end pawnshops. This explains the disproportionately large share of Jews in the goldsmith trade and early diamond market (diamonds being a lightweight alternative to gold).
It comes as 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. This Italian 'Lombard' pawn shop method became famous. The use of the term 'Lombard' for pawn shop grew slowly from city to city, and became prevalent in Cahors
Cahors
Cahors is the capital of the Lot department in south-western France.Its site is dramatic being contained on three sides within an udder shaped twist in the river Lot known as a 'presqu'île' or peninsula...
, southern France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, from where the Christian Cahorsins moved as far North as London and Amsterdam in the 13th century; at the latter, they were called Cahorsijnen, Cawarsini or Coarsini.
15th and 16th centuries
In 1492 Ferdinand and Isabella of SpainSpain
Spain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
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 become wealthy in commercially successful Portuguese port cities. Being forced on the move, Jewish families remained mobile and quickly developed international family agencies for growing brokerage houses involved with shipping. Such family networks of mobile Jewish "lombards" migrated from port city to city with the Spanish Inquisition and created 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 resided there. In Dutch
Dutch language
Dutch is a West Germanic language and the native language of the majority of the population of the Netherlands, Belgium, and Suriname, the three member states of the Dutch Language Union. Most speakers live in the European Union, where it is a first language for about 23 million and a second...
, 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). In Polish
Polish language
Polish is a language of the Lechitic subgroup of West Slavic languages, used throughout Poland and by Polish minorities in other countries...
and Russian
Russian language
Russian is a Slavic language used primarily in Russia, Belarus, Uzbekistan, Kazakhstan, Tajikistan and Kyrgyzstan. It is an unofficial but widely spoken language in Ukraine, Moldova, Latvia, Turkmenistan and Estonia and, to a lesser extent, the other countries that were once constituent republics...
, a pawn shop is called simply lombard.
17th and 18th centuries
The near-monopoly position of the Jewish lombards in finance became less prominent as various Protestant factions after the ReformationProtestant Reformation
The Protestant Reformation was a 16th-century split within Western Christianity initiated by Martin Luther, John Calvin and other early Protestants. The efforts of the self-described "reformers", who objected to the doctrines, rituals and ecclesiastical structure of the Roman Catholic Church, led...
became just as persecuted as the Jews. In the 18th century many bankers and shipping agents were Quakers. Though the pawnshops were no longer manned by Jews and/or Jesuits, they were more and more often called Lombard houses, and most major port cities still have a 'Lombard Street
Lombard Street
There are several famous Lombard Streets:* Lombard Street , famed for its twists and turns* Lombard Street, London, leading from the Bank of England to Gracechurch Street...
' or 'Lombard Ally' today. American examples are San Francisco, New Orleans, Boston
Boston
Boston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
, Baltimore
Baltimore
Baltimore is the largest independent city in the United States and the largest city and cultural center of the US state of Maryland. The city is located in central Maryland along the tidal portion of the Patapsco River, an arm of the Chesapeake Bay. Baltimore is sometimes referred to as Baltimore...
, and Philadelphia. The term 'Lombard' for pawnshop (or pawnshop owner) was in use well into the late 18th century, thus many of these streets were named with the establishment of shipping agents in those towns.
Modern day
The practice of Lombard creditLombard credit
Lombard credit is the granting of credit to banks against pledged items, mostly in the form of securities or life insurance policies. The pledged items must be readily salable...
is still commonly used in central banking, where central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s lend against marketable securities, such as government bond
Government bond
A government bond is a bond issued by a national government denominated in the country's own currency. Bonds are debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to a company or country...
s. Modern repo
Repurchase agreement
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively...
(repurchase-sale transactions) are also forms of Lombard lending: one bank sells marketable securities to another (at a discount), with an agreement to repurchase the securities (typically at par) in a fixed period of time. Although the legal documentation of the transaction is that of a sale and subsequent repurchase, the substance of the transaction is a secured loan (and under most accounting standards, will be treated as a loan). Pawn shops in many countries and languages are often still referred to as Lombards.
See also
- Islamic bankingIslamic bankingIslamic banking is banking or banking activity that is consistent with the principles of Islamic law and its practical application through the development of Islamic economics. Sharia prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money...
- Lombard BankLombard BankLombard Bank Malta Plc is one of Malta's major banks, together with Bank of Valletta, HSBC Bank Malta and APS Bank. Today, Marfin Popular Bank of Cyprus is the largest shareholder with an equity stake of about 49%. Over 1,200 shareholders, including investment funds, hold the remaining shares...
- Lombard Street, LondonLombard Street, LondonLombard Street is a street in the City of London.It runs from the corner of the Bank of England at its north-west end, where it meets a major junction including Poultry, King William Street, and Threadneedle Street, south-east to Gracechurch Street....