The Failure of the Bardi and Peruzzi 1343: the first international banking crisis
How two of the largest medieval Florentine banks failed because the King of England didn't pay his debts
In 1343-1346, the Florentine banks Bardi and Peruzzi — the largest in Europe — failed after Edward III of England didn't repay loans to finance the Hundred Years' War. First international banking crisis.
The super-banks of the Middle Ages
In the 14th century, the Bardi and Peruzzi of Florence were the largest banks in Europe. They had offices throughout Europe, managed papal finances, and financed kings and emperors. The Peruzzi had capital of 100,000 gold florins — enormous for the time.
The great debtor
Edward III of England needed money to finance his war against France (Hundred Years' War, 1337-1453). He took enormous loans from the Bardi and Peruzzi. In 1343, he declared he couldn't repay. The default was total.
Unpaid loans amounted to about 1,365,000 gold florins from the Peruzzi and 900,000 from the Bardi — sums that far exceeded their capital.
The Florentine contagion
When the news spread, there was a bank run. Florentine depositors wanted their money back. The banks couldn't honor withdrawals — liquidity was locked in loans to Edward. Both banks failed between 1343 and 1346.
- Sovereign risk is the oldest banking risk: kings had no collateral and could ignore debts.
- Concentration of risk on a single debtor is fatal: Bardi and Peruzzi bet too much on Edward III.
- Bank runs are as old as banks: the bank panic mechanism hasn't changed in 700 years.