The institutional practice of holding deposits, extending credit, and transferring money across space and time — a foundation of economic civilization so pervasive that its absence is almost unimaginable, and whose periodic crises reveal how much of modern life is built on organized debt.
In 1345, the Bardi and Peruzzi banking families of Florence went bankrupt. Edward III of England had borrowed heavily to finance his wars with France and defaulted on the loans. The Bardi and Peruzzi had extended credit worth roughly three times the annual revenue of the English crown. Their collapse triggered a financial crisis that rippled through the Mediterranean economy and contributed to the ruin of dozens of dependent firms. Giovanni Villani, a Florentine chronicler, called it the "crash of the great banks." Six centuries later, in September 2008, Lehman Brothers filed for bankruptcy. The event triggered a global financial crisis, a recession that cost tens of millions of people their jobs, and government bailouts in the trillions of dollars. The mechanism was different. The scale was different. The underlying structure was the same: banks that had extended credit beyond what their depositors and creditors could absorb, in a system where the failure of large institutions threatened to bring down smaller ones. Banking is one of civilization's oldest and most contested inventions. It allows merchants to trade across continents without carrying coins. It allows farmers to survive a bad harvest by borrowing against the next good one. It allows governments to fight wars, build roads, and fund welfare states. And periodically, it fails in ways that remind the world how much of modern life depends on an institution that is, at bottom, built on trust.