Alright, it’s time for the last piece in this series. Or at least the last piece for the time being. As always I might revisit this if I find there’s more to say.
So far we’ve broken down how currency was actually used in medieval societies and used that as a framework to more realistically handle transactions in our game worlds. We’ve also examined the use of multiple currencies in a single setting and how we might simulate such a thing.
This piece is going to cover some of the theory behind how medieval banking works, but is mostly going to be tangible, applicable systems to include in your settings. Let’s get stuck in.
Why Do Banks Exist?
Medieval banking is in many ways similar to modern banking with one major exception:
Very few people left money in a bank account.
In fact ‘Banks’ were mostly just large moneylending organisations, often run by families. Some could provide other facilities, such as currency exchange and the ability to deposit at one branch and withdraw at another, but unlike today where everyone has a bank account and leaves pretty much all their money in it only a few wealthy people would do something like deposit money with a bank for later withdrawal.
So banks can’t necessarily make their money from the ‘little-but-often’ things like account fees, transaction fees and withdrawal fees like how modern banks can. They had to make most of their money from giving loans.
Unfortunately We Have To Talk About The Church
So for the entirety of the period we’re going to examine (the ever nebulous ‘Early Modern Period’ in Europe) the very nature of banking was defined by the fact that the church outlawed the charging of interest.
Because of that we’re first going to look at how banking actually worked historically given this limitation, then we’re going to consider how medieval banking might have worked without this limitation. Between the two you should be able to get a pretty robust variety of ways to integrate banking into your settings.
How Do You Make Money If You Can’t Charge Interest?
Great question! The simplest answer is that banks would gladly loan you money with a late payment clause in the contract. If you didn’t pay back the loan on time you would be required to pay back extra.
Now I know what you’re thinking. Wouldn’t everyone just pay back on time and the banks wouldn’t make any money?
Well in theory they could, but paying late was essentially an enforced cultural norm. If you always paid back your loans on time, thus denying the banks their profits, you would very quickly be blacklisted from every bank in town. In fact, the only people willing to lend you money might now be the dodgy moneylenders who operated outside of the law and did charge interest.
So you were heavily incentivised to pay back loans late with this extra fee attached to the point where it was essentially mandatory. Well, mandatory for most people. More on that later.
But there were also other ways banks could make money that weren’t related to moneylending. Fees were a big part of operating a bank, but unlike today most people didn’t leave all their money in banks. Only a wealthy few did. This meant the fees that were in place were on top of very bespoke services. It wouldn’t be a few cents per transaction, it would be a chunky percentage.
Other Banking Services Part 1 (Currency Exchange)
I mentioned currency exchange earlier, and even discussed it a bit in the last piece, but one of the great ways banks could earn money was via currency exchange services. If you were a bank in a city near a border you could make a pretty penny exchanging travellers’ money.
So how do you profit off this? Well we talked about that in the last piece. Let’s say they’re using currency A to buy 50 of currency B and the exchange rate is 2:1. That 50 B will cost them 100 A.
But you don’t charge them 100 A, you charge them the value plus 10%. They pay you 110 A and you give them 50 B. You just made a profit.
No matter the direction of exchange you charge a percentage. This is in fact no different to how money exchange services work now. But there is one major thing banks who dealt in currency exchange had to account for.
What Exactly Is The Exchange Rate?
I’m not going to break this topic down a second time. It was big and complex enough that I dedicated an entire piece to it. And seriously, go read it.
But Banks who regularly changed currencies for people had to have a very keen understanding of the exchange rate, and that rate could change for very peculiar reasons. This carried a significant risk to the bank.
Let’s say you’ve made a few deals recently where you sell currency B and receive a bunch of currency A. Your coffers are now mostly currency A. Then that currency’s empire collapses into a civil war and nobody’s trading in that currency anymore. Your large stocks of coins are now functionally worthless. You can’t lend out those coins, you can’t sell them to people in exchange for currency B, you can’t afford the cost of melting them down into raw gold.
You go bankrupt. You collapse.
So currency exchange carried with it a pretty serious risk. It was only profitable as a primary (or sole) business activity in parts of the world where currency was regularly exchanged in both directions or where multiple currencies were regularly exchanged. The most robust banks for currency exchange would be in only the most major trade hubs, many of which would be ports.
Other Banking Services Part 2 (International Withdrawals)
You’re a smart banker, you’re not going purely into the business of currency exchange. There’s another way you can get those handsome percentages from people wealthy enough to travel around the world.
You start letting people deposit money in your city (let’s call it ‘Florence’) and withdraw it in all the other major trade cities of the world (let’s call them ‘London’, ‘Bruges’ and ‘Amsterdam’). Now, how exactly does that work? What’s to stop someone from showing up to the London branch claiming you let them deposit 10,000 gold that you’d now like to withdraw?
Well most international banks were family-run businesses. The manager of the London branch? He’s your brother. Your other brother runs the Bruges branch, and your close cousin runs the Amsterdam branch. You know each other extremely well and are communicating constantly. As a result of that, you know each other’s handwriting extremely well.
So a wealthy customer wants to travel from Florence to London without risking being robbed on the road. She deposits 10,000g with you in Florence and says ‘I’m travelling to London and expect to withdraw my money there’. You write a note explaining this and send it to your brother at the London branch through the fastest means possible. By the time the customer arrives in London your brother has already received your note, knows it’s your handwriting and seal, and has the money ready to be withdrawn.
But this is a complicated service, and a part of that service includes the expense of express postage (hands up who wants me to do a piece on medieval postal services), so you can charge a massive premium. The lady deposits 10,000g with you in Florence plus a 10% fee for the service, then when she withdraws it your brother also takes a 10% cut of the withdrawn funds.
So really the lady gives you 11,000g and your brother in London gives her 9,000g. Both of you get to earn your cut since it wouldn’t do very well if only one of your branches was making money. Your cash in Florence doesn’t much help your brother in London put food on the table.
So banking families were able to get filthy rich. In the examples I’ve given I’ve used 10% cuts just because it makes the math simple. In reality these percentages were much higher. But this incredible profit came with a huge amount of risk. We’ve already talked about the risks involved with currency exchange services, but both moneylending and international deposit/withdrawal services also came with big risks.
let’s start with moneylending, since that one has the most historical precedence. Remember when I said paying back loans with late payment fees was mandatory for most people? Well, put bluntly if the queen approached your banking family and said ‘I need to raise an army. Loan me 100,000 gold,’ you couldn’t very well say ‘no’. You’re more or less required to lend the money (and indeed some governments passed laws saying it was illegal to deny the sovereign a loan).
But let’s say the queen’s war is a disaster. The queen is just going to not pay back the loan. What are you going to do, arrest the queen? In fact, even if the war was a success the queen might well just not pay back the loan. They could get away with it, and they knew it.
Monarchs tend not to take small loans. An unpaid loan from a ruler was often enough to singlehandedly make entire banks insolvent.
Now in reality there are incentives for rulers to pay back loans. If you do bankrupt an entire family every time you decide to take a loan then eventually the remaining bankers (who, need I remind you, are obscenely wealthy) will band together and back the queen’s brother to usurp her.
Now the risk here is in reality much less of an issue, but we must discuss it nonetheless.
International banks relied on recognising official communications from other branches. A convincing enough forgery gets around this issue well enough. This is one that’s not really a problem in the real world (at least not to the extent that it could bankrupt the branch), but for our D&D games this provides us some very interesting opportunities. I’ll go over those in the last section.
Alternatively, let’s say your London branch collapses. Maybe your brother died and you couldn’t get a replacement manager in time. Now this branch collapse doesn’t directly affect your solvency in Florence, but it does limit the service you can provide. You can’t take on customers wanting to travel to London until you get a new branch set up, which will take a lot of time and a lot of capital. In the interim you’re losing out on some big business, and by the time you’re set up in London again you’re no longer the bank of choice for international travellers.
If London happens to be the most popular travel destination for people in your city then this represents a big competitive disadvantage. Again, it’s not enough to bankrupt you, but it is going to seriously hurt your potential profits. If it happens enough times though then eventually it’s going to start to hurt your bottom line. When you keep losing your clientele to your competitors for their international services eventually people will stop coming to you for moneylending and currency exchange services too.
If Only I Could Charge Interest…
Ok so I said I’d examine how banking changes if banks can charge interest on loans. In reality very little changes. They’ll still provide those other services, and their moneylending services will include interest just like modern banks.
The things that will change is now banks have multiple ways to make money off giving out loans. An unscrupulous banker may make their contracts intentionally confusing to make it unclear whether they’re charging interest, late payment fees, or some combination of the two (and that’s to say nothing of interest on late payments, or simple vs compound interest). Given that even people interacting with banks weren’t necessarily highly numerate, more complex concepts like compound interest might catch borrowers out on the regular.
Or indeed the net effect is there would be a rise in accounting services. You’re a wealthy noble, you’d rather just pay someone who’s good with numbers to handle all this stuff for you. And now those who have access to banking is limited to only those who can either understand complex math or can pay someone who understands it. Everyone else is taking a huge gamble when they borrow money since they don’t know exactly how the bank is going to screw them.
But they do know for sure the bank is definitely going to screw them.
Banks In D&D
All of these things put together create a wealth of interesting thing we can include in our campaigns.
First and foremost we can have banks be more actively ingrained into the politics of our worlds. Perhaps the next time you’re worldbuilding you’ll include in one nation a banking dynasty so wealthy they essentially pick the ruler and said ruler is nothing more than a puppet. Perhaps you’ll have a once-great trading town that’s now destitute after the king ran all the banks out of business. Maybe you’ll have a banking family that’s paying off the thieves’ guild to rob all their competitors to put them out of business.
But there’s also the more active ways we can have our players interacting with banks. I discussed in the last piece that if you have multiple currencies in your settings you can require that players go to banks to exchange currencies when they need to travel to other nations. As a part of that you can be charging that exchange percentage (which makes for a great gold sink when your players travel a lot).
An extension of that would be having the party go through the process of depositing funds and withdrawing them elsewhere in the world with those percentage fees applied. However here we also have an interesting opportunity. Let’s say the party is short on cash, and back in Grampleton they met a banker whose brother runs the bank in Sydleham. The Rogue observes the banker’s handwriting and forges a writ of deposit, which they send to the brother in Sydleham. Then the party travel to Sydleham and withdraw their supposed funds.
And maybe after a few instances of committing fraud the party makes some powerful, wealthy enemies in the form of the bankers of the world…
In fact, if you’ve ever wanted to run an evil campaign then banks make for great pseudo-antagonists. Let’s face it, even when we play evil characters we don’t necessarily want to go around murdering orphans and killing angels. Banks make for great targets for evil deeds. There’s nothing more classic than a heist. Or you can use banks as great allies in evil deeds. Let’s say the banks are banding together to depose the king. They have their usurper lined up and everything. All they need now is for someone to do the dirty work of actually assassinating the current king, and they’ll pay top dollar to whoever is willing to do that. Enter unscrupulous adventuring party…
Or perhaps we’re doing the opposite kind of thing and are taking down the big evil bank. Every desperate merchant in town has been screwed by the local bank’s impenetrable contracts and they’d love to take its owners down. If only they had someone willing to take down the bank and give all that money back out to the merchants. Another similar thing would be our good and honest king is trying to pass laws limiting the banks’ activities, and he knows full well the banks are conspiring to dethrone him, so he hires the party to travel the realm and systematically take down every major banking family.
Whew, that was a lot of content to get through just to come to that final stretch of actually using banks in your campaigns. That being said, now that you (hopefully) have a full understanding of how banking works you can deftly integrate them in ways that even go beyond what I’ve covered here. Frankly banks are fascinating and are an often-underused piece of the political makeup of our worlds. In fact, the very nature of currency as a whole is massively underused in the context of worldbuilding.
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