A little bit of banking history repeating

Last updated 8 Jan 2009 12:30 0 Comments

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FAILING banks sparked a credit crunch back in the 13th century, according to Reading University research.

Dr Adrian Bell, senior financial history lecturer, said: "Events 700 years ago, starting in 1294, sound very much like today's headlines. They included a sub-prime borrower, liquidity disappearing, recriminations, the seizure of foreign owned assets and runs on the bank."

He said that in the 1280s, the Italian merchant societies, the forerunners of investment banks, were awash with money as they managed taxes for the Pope and the English king, as well as holding deposits from the wealthy. But in the early 1290s the Pope called in his money, the French king levied higher taxes, and war broke out between England and France.

This caused interbank lending to dry up, with the merchant societies unwilling to lend to each other for fears of the English king defaulting on his debts. In a document from 1294, the Ricciardi - the merchant bankers - said: "Where we used to have credit and could borrow 100,000 and 200,000 livres tournois (£25,000-50,000) and even more, we are now reduced to such a point that if we wanted 100 livres tournois (£25) we could not find them."

Dr Bell and two other researchers won a research grant worth just over £350,000 from the Economic and Social Research Council to investigate credit from 1272-1340. The 1294 credit crunch is just part of the startling story they have uncovered.

For the full history and more surprising links to today's financial crisis, visit: www.icmacentre.ac.uk/medievalcredit

This article appeared in Reading Chronicle 08 Jan 09

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