Lombard banking refers to the business of Italian moneylenders generally referred to as "Lombards", even though many originated from Northern and Central Italian regions other than Lombardy. The term was often used in a derogatory sense, as Lombard banking was associated with the sin of usury.
Lombard lenders became active throughout Western Europe in the 13th and 14th centuries, emigrating from major merchant centers in Tuscany such as Florence, Lucca and Siena, [1] : 63 and in Northern Italy such as Milan or Genoa but also from smaller cities such as Asti in Piedmont. [2] : 134 They often displaced the French Cahorsins, even though there is much confusion in documentary sources between the two communities. In some regional contexts, the two words "Lombard" and "Cahorsin" were used interchangeably until the latter gradually fell into disuse from the 14th century. [1] [3]
A Catholic prohibition on profit from money without working made most forms of lending sinful. Pope Leo I forbade usury by canon law. Even so, it was not per se forbidden to take collateral on loans. Pawn shops thus could 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 repurchase agreement 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, Judaism, and Islam generally ban usury, but allow usury towards those outside their faith. Thus Christians could lend to Jews and vice versa. The necessity of credit for functioning European economies was such that the Church's ban on usury was routinely undermined, "Despite the ban on usury, no medieval European government - municipal, territorial, or national - was able to function without borrowing...But such loans were usually for short terms, often at punitive rates of interest". [4]
The prominent position of the Lombards in Christian finance eroded with the Protestant Reformation. In the 18th century many bankers and shipping agents in England were Quakers. The term "Lombard" for pawnshop (or pawnshop owner) remained in use well into the late 18th century.[ citation needed ]
In modern central banking practice, Lombard credit refers to central bank lending against marketable securities, such as government bonds. Modern repurchase agreements 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).
Modern financial firm names that refer to Lombard banking include Lombard North Central and TS Lombard in the UK as well as Lombard Bank in Malta.
Numerous European cities still have a street named Lombard Street after the Lombard bankers who once resided there, as do several American port cities. These include rue des Lombards in Paris; Lombard Street, London; Lombard Street (San Francisco); Lombard Street (Baltimore); and similarly named streets in other cities including Aachen, Amiens, Antwerp, Bergen op Zoom, Boston, Châlons-en-Champagne, Compiègne, Dublin, Évreux, New Orleans, Nîmes, Philadelphia, Portland, Oregon, Portsmouth, and Toronto.
In Dutch, the name for a pawn shop is still lommerd. In Ukrainian, Polish and Russian, a pawn shop is similarly called lombard.
A pawnbroker is an individual or business that offers secured loans to people, with items of personal property used as collateral. The items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral. While many items can be pawned, pawnshops typically accept jewelry, musical instruments, home audio equipment, computers, video game systems, coins, gold, silver, televisions, cameras, power tools, firearms, and other relatively valuable items as collateral.
Usury is the practice of making loans that are seen as unfairly enriching the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is charged in excess of the maximum rate that is allowed by law. A loan may be considered usurious because of excessive or abusive interest rates or other factors defined by the laws of a state. Someone who practices usury can be called a usurer, but in modern colloquial English may be called a loan shark.
The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less.
A merchant bank is historically a bank dealing in commercial loans and investment. In modern British usage it is the same as an investment bank. Merchant banks were the first modern banks and evolved from medieval merchants who traded in commodities, particularly cloth merchants. Historically, merchant banks' purpose was to facilitate and/or finance production and trade of commodities, hence the name "merchant". Few banks today restrict their activities to such a narrow scope.
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two parties, buys them back shortly afterwards, usually the following day, at a slightly higher price.
Riba is an Arabic word used in Islamic law and roughly translated as "usury": unjust, exploitative gains made in trade or business. Riba is mentioned and condemned in several different verses in the Qur'an. It is also mentioned in many hadith.
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 marketable; in particular, the securities 'eligible for collateral' which are registered on lists. Lending is via central banks. In the US, the Lombard rate was set at the top of the Federal Open Market Committee target range for the federal funds rate on March 16, 2020.
The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BC in Assyria, India and Sumer. Later, in ancient Greece and during the Roman Empire, lenders based in temples gave loans, while accepting deposits and performing the change of money. Archaeology from this period in ancient China and India also shows evidence of money lending.
A contractum trinius, also known as triple contract, was a set of contracts devised by European bankers and merchants in the Middle Ages as a method of circumventing canonical laws prohibiting usury as a part of Christian finance. At the time, most Christian nations heavily incorporated scripture into their laws, and as such it was illegal for any person to charge interest on a loan of money.
A mount of piety is an institutional pawnbroker run as a charity in Europe from Renaissance times until today. Similar institutions were established in the colonies of Catholic countries; the Mexican Nacional Monte de Piedad is still in operation.
Pawnbroking, lending money on portable security, began in ancient history. The practice was widespread in many parts of the world, from ancient Greece to medieval China and medieval Europe.
Murabaḥah, murabaḥa, or murâbaḥah was originally a term of fiqh for a sales contract where the buyer and seller agree on the markup (profit) or "cost-plus" price for the item(s) being sold. In recent decades it has become a term for a very common form of Islamic financing, where the price is marked up in exchange for allowing the buyer to pay over time—for example with monthly payments. Murabaha financing is similar to a rent-to-own arrangement in the non-Muslim world, with the intermediary retaining ownership of the item being sold until the loan is paid in full. There are also Islamic investment funds and sukuk that use murabahah contracts.
Vix pervenit is an encyclical, promulgated by Pope Benedict XIV on November 1, 1745, which condemned the practice of charging interest on loans as usury. Because the encyclical was addressed to the bishops of Italy, it is generally not considered ex cathedra. The Holy Office applied the encyclical to the whole of the Roman Catholic Church on July 29, 1836, during the reign of Pope Gregory XVI.
Lombard Street: A Description of the Money Market (1873) is a book by Walter Bagehot. Bagehot was one of the first writers to describe and explain the world of international and corporate finance, banking, and money in understandable language. The book was initially printed in Great Britain by Henry S. King & Co. in 1873.
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
The U.S. central banking system, the Federal Reserve, in partnership with central banks around the world, took several steps to address the subprime mortgage crisis. Federal Reserve Chairman Ben Bernanke stated in early 2008: "Broadly, the Federal Reserve’s response has followed two tracks: efforts to support market liquidity and functioning and the pursuit of our macroeconomic objectives through monetary policy." A 2011 study by the Government Accountability Office found that "on numerous occasions in 2008 and 2009, the Federal Reserve Board invoked emergency authority under the Federal Reserve Act of 1913 to authorize new broad-based programs and financial assistance to individual institutions to stabilize financial markets. Loans outstanding for the emergency programs peaked at more than $1 trillion in late 2008."
The interbank lending market is a market in which banks lend funds to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight. Such loans are made at the interbank rate. A sharp decline in transaction volume in this market was a major contributing factor to the collapse of several financial institutions during the financial crisis of 2007–2008.
A payday loan is a small, short-term unsecured loan, "regardless of whether repayment of loans is linked to a borrower's payday." The loans are also sometimes referred to as "cash advances," though that term can also refer to cash provided against a prearranged line of credit such as a credit card. Payday advance loans rely on the consumer having previous payroll and employment records. Legislation regarding payday loans varies widely between different countries and, within the United States, between different states.
In 2014, there were 200 pawnbrokers in Hong Kong, with the number increasing over the next several years. Pawn shops are some of the oldest businesses in Hong Kong. The pawn shops themselves have several prominent features, including a screen to block the view of passersby, as well as a high counter. Additionally, these shops are governed by strict regulations, such as having to keep records of all transactions and being obliged to report any suspicious items to the authorities.
The Islamic banking and finance movement that developed in the late 20th century as part of the revival of Islamic identity sought to create an alternative to conventional banking that complied with sharia (Islamic) law. Following sharia it banned from its practices riba (usury) – which it defined as any interest paid on all loans of money – and involvement in haram (forbidden) goods or services such as pork or alcohol. It also forbids gambling (maisir) and excessive risk.