2. Banking in Greece and Rome

In ancient Greece temples acted as banks, loaning money to individuals and monarchs. For religious reasons temples were considered inviolable and became a relatively safe refuge for money. In addition, they had their own militias to defend them and their wealth inspired confidence in depositors. From a financial standpoint the following were among the most important Greek temples: Apollo in Delphi, Artemis in Ephesus, and Hera in Samos.

TRAPEZITEI OR GREEK BANKERS

Fortunately certain documentary sources on banking in Greece are available to us. The first and perhaps most important is Trapezitica⁴ written by Isocrates around the year 393 B.C.⁵ It is a forensic speech in which Isocrates defends the interests of the son of a favorite of Satyrus, king of Bosphorus. The son accuses Passio, an Athenian banker, of misappropriating a deposit of money entrusted to him. Passio was an exslave of other bankers (Antisthenes and Archetratos), whose trust he had obtained and whose success he even surpassed, for which he was awarded Athenian citizenship. Isocrates's forensic speech describes an attempt by Passio to appropriate deposits entrusted to his bank by taking advantage of his depositor's difficulties, for which he did not hesitate to deceive, forge, and steal contracts, bribe, etc. In any case, this speech is so important to our topic that it is worth our effort to consider some of its passages in detail.

Isocrates begins his arguments by pointing out how hazardous it is to sue a banker, because

deals with bankers are made without witnesses and the injured parties must put themselves in jeopardy before such people, who have many friends, handle large amounts of money and appear trustworthy due to their profession. ⁶

It is interesting to consider the use bankers have always made of all of their social influence and power (which is enormous, given the number and status of figures receiving loans from them or owing them favors) to defend their privileges and continue their fraudulent activity.⁷

Isocrates explains that his client, who was planning a trip, deposited a very large amount of money in Passio's bank. After a series of adventures, when Isocrates's client went to withdraw his money, the banker claimed he “was without funds at the moment and could not return it.” However, the banker, instead of admitting his situation, publicly denied the existence of any deposit or debt in favor of Isocrates's client. When the client, greatly surprised by the banker's behavior, again claimed payment from Passio, he said to the banker,

after covering his head, cried and said he had been forced by economic difficulties to deny my deposit but would soon try to return the money to me; he asked me to take pity on him and to keep his poor situation a secret so it would not be discovered he had committed fraud.⁸

It is therefore clear that in Greek banking, as Isocrates indicates in his speech, bankers who received money for safekeeping and custody were obliged to safeguard it by keeping it available to their clients. For this reason, it was considered fraud to employ that money for their own uses. Furthermore, the attempt to keep this type of fraud a secret so people would conserve their trust in bankers and the latter could continue their fraudulent activity is very significant. Also, we may deduce from Isocrates's speech that for Passio this was not an isolated case of fraud, an attempt to appropriate the money of a client under favorable circumstances, but that he had difficulty returning the money because he had not maintained a 100-percent reserve ratio and had used the deposited money in private business deals, and he was left with no other “escape” than to publicly deny the initial existence of the deposit.

Isocrates continues his speech with more words from his client, who states:

Since I thought he regretted the incident, I compromised and told him to find a way to return my money while saving face himself. Three days later we met and both promised to keep what had happened a secret; (he broke his promise, as you will find later in my speech). He agreed to sail with me to Pontus and to return the gold to me there, in order to cancel the contract as far from this city as possible; that way, no one from here would find out the details of the cancellation, and upon sailing back, he could say whatever he chose.

Nevertheless, Passio denies this agreement, causes the disappearance of the slaves who had been witnesses to it and forges and steals the documents necessary to try to demonstrate that the client had a debt with him instead of a deposit. Given the secrecy in which bankers performed most of their activities, and the secret nature of most deposits,⁹ witnesses were not used, and Isocrates was forced to present indirect witnesses who knew the depositor had taken a large amount of money and had used Passio's bank. In addition, the witnesses knew that at the time the deposit was made the depositor had changed more than one thousand staters into gold. Furthermore, Isocrates claims that the point most likely to convince the judges of the deposit's existence and of the fact that Passio tried to appropriate it was that Passio always refused to

turn over the slave who knew of the deposit, for interrogation under torture. What stronger evidence exists in contracts with bankers? We do not use witnesses with them.¹⁰

Though we have no documentary evidence of the trial's verdict, it is certain that Passio was either convicted or arrived at a compromise with his accuser. In any case, it appears that afterward he behaved properly and again earned the trust of the city. His house was inherited by an old slave of his, Phormio, who successfully took over his business.

More interesting information on the activity of bankers in Greece comes from a forensic speech written by Demosthenes in favor of Phormio. Demosthenes indicates that, at the time of Passio's death, Passio had given fifty talents in loans still outstanding, and of that amount, “eleven talents came from bank deposits.” Though it is unclear whether these were time or demand deposits, Demosthenes adds that the banker's profits were “insecure and came from the money of others.” Demosthenes concludes that “among men who work with money, it is admirable for a person known as a hard worker to also be honest,” because “credit belongs to everyone and is the most important business capital.” In short, banking was based on depositors' trust, bankers' honesty, on the fact that bankers should always keep available to depositors money placed in demand deposits, and on the fact that money loaned to bankers for profit should be used as prudently and sensibly as possible. In any case, there are many indications that Greek bankers did not always follow these guidelines, and that they used for themselves money on demand deposit, as described by Isocrates in Trapezitica and as Demosthenes reports of other bankers (who went bankrupt as the result of this type of activity) in his speech in favor of Phormio. This is true of Aristolochus, who owned a field “he bought while owing money to many people,” as well as of Sosynomus, Timodemus, and others who went bankrupt, and “when it was necessary to pay those to whom they owed money, they all suspended payments and surrendered their assets to creditors.”¹¹

Demosthenes wrote other speeches providing important information on banking in Greece. For example, in “Against Olympiodorus, for Damages,”¹² he expressly states that a certain Como

placed some money on demand deposit in the bank of Heraclides, and the money was spent on the burial and other ritual ceremonies and on the building of the funerary monument.

In this case, the deceased made a demand deposit which was withdrawn by his heirs as soon as he died, to cover the costs of burial. Still more information on banking practices is offered in the speech “Against Timothy, for a Debt,” in which Demosthenes affirms that

bankers have the custom of making entries for the amounts they hand over, for the purpose of these funds, and for deposits people make, so that the amounts given out and those deposited are recorded for use when balancing the books.¹³

This speech, delivered in 362 B.C., is the first to document that bankers made book entries of their clients' deposits and withdrawals of money.¹⁴ Demosthenes also explains how checking accounts worked. In this type of account, banks made payments to third parties, following depositors' instructions.¹⁵ As legal evidence in this specific case, Demosthenes

adduced the bank books, demanded copies be made, and after showing them to Phrasierides, I allowed him to inspect the books and make note of the amount owed by this individual.¹⁶

Finally, Demosthenes finishes his speech by expressing his concern at how common bank failures were and the people's great indignation against bankers who went bankrupt. Demosthenes mistakenly attributes bank failures to men who

in difficult situations request loans and believe that credit should be granted them based on their reputation; however, once they recover economically, they do not repay the money, but instead try to defraud.¹⁷

We must interpret Demosthenes's comment within the context of the legal speech in which he presents his arguments. The purpose of the speech was precisely to sue Timothy for not returning a bank loan. It would be asking too much to expect Demosthenes to have mentioned that most bank failures occurred because bankers violated their obligation to safeguard demand deposits, and they used the money for themselves and put it into private business deals up to the point when, for some reason, the public lost trust in them and tried to withdraw their deposits, finding with great indignation that the money was not available.

On various occasions research has suggested Greek bankers usually knew they should maintain a 100-percent reserve ratio on demand deposits. This would explain the lack of evidence of interest payments on these deposits, as well as the proven fact that in Athens banks were usually not considered sources of credit.¹⁸ Clients made deposits for reasons of safety and expected bankers to provide custody and safekeeping, along with the additional benefits of easily-documented cashier services and payments to third parties. Nevertheless, the fact that these were the basic principles of legitimate banking did not prevent a large group of bankers from yielding to the temptation to (quite profitably) appropriate deposits, a fraudulent activity which was relatively safe as long as people retained their trust in bankers, but in the long run it was destined to end in bankruptcy. Moreover, as we will illustrate with various historical examples, networks of fraudulent bankers operating, against general legal principles, with a fractional-reserve ratio bring about credit expansion¹⁹ unbacked by real savings, leading to artificial, inflationary economic booms, which finally revert in the shape of crises and economic recessions, in which banks inexorably tend to fail.

Raymond Bogaert has mentioned the periodic crises affecting banking in ancient Greece, specifically the economic and financial recessions of 377–376 B.C. and 371 B.C., during which the banks of Timodemus, Sosynomus and Aristolochus (among others) failed. Though these recessions were triggered by the attack of Sparta and the victory of Thebes, they emerged following a clear process of inflationary expansion in which fraudulent banks played a central part.²⁰ Records also reflect the serious banking crisis which took place in Ephesus following the revolt against Mithridates. This crisis motivated authorities to grant the banking industry its first express, historically-documented privilege, which established a ten-year deferment on the return of deposits.²¹

In any case, the bankers' fraudulent activity was extremely “profitable” as long as it was not discovered and banks did not fail. We know, for example, that the income of Passio reached 100 minas, or a talent and two-thirds. Professor Trigo Portela has estimated that this figure in kilograms of gold would be equivalent today to almost two million dollars a year. This does not seem an extremely large amount, though it was really quite spectacular, considering most people lived at mere subsistence level, ate only once a day and had a diet of cereals and vegetables. Upon his death, Passio's fortune amounted to sixty talents; given a constant value for gold, this would add up to nearly forty-four million dollars.²²

BANKING IN THE HELLENISTIC WORLD

The Hellenistic period, especially Ptolemaic Egypt, was a turning point in the history of banking because it marked the creation of the first government bank. The Ptolemies soon realized how profitable private banks were, and instead of monitoring and cracking down on bankers' fraudulent activities, decided to cash in on the overall situation by starting a government-run bank which would conduct business with the “prestige” of the state.

Although there was never a true government monopoly on banking, and private banks (mostly run by Greeks) continued to operate, Egypt's prosperity secured a predominant role for the state bank. Rostovtzeff observes that the Ptolemaic bank also developed a sophisticated accounting system:

Refined accounting, based on a well-defined professional terminology, replaced the rather primitive accounting of fourth-century Athens.²³

Several archaeological studies show how widespread banking was during the Hellenistic period in Egypt. An incomplete document found in Tebtunis containing daily account records of a rural bank in the province of Heracleopolis shows the unexpectedly high number of villagers who, whether farmers or not, did business through banks and made payments out of their deposits and bank accounts. Relatively wealthy people were few, and most of the bank's customers were retailers and indigenous craftspeople, linen merchants, textile workers, tailors, silversmiths and a tinker. Also, debts were often paid in gold and raw silver, following the ancient Egyptian tradition. Grain, oil and cattle dealers, as well as a butcher and many innkeepers were documented as clients of the bank. The Ptolemaic government bank, private banks, and temples alike kept custody of different kinds of deposits. According to Rostovtzeff, bankers accepted both demand deposits and interest-paying time deposits. The latter were, in theory, invested in

credit operations of various sorts—loans on collateral security, pledges, and mortgages, and a special very popular type—bottomry loans.²⁴

Private banks kept custody of their clients' deposits while at the same time placing their own money in the government bank.

The main innovation of Egyptian banking was centralization: the creation of a government central bank in Alexandria, with branches in the most important towns and cities, so that private banks, when available, played a secondary role in the country's economy. According to Rostovtzeff, this bank held custody of tax revenues and also took in private funds and deposits from ordinary clients, investing remaining funds in benefit of the state. Thus, it is almost certain that a fractional-reserve system was used and that the bank's huge profits were appropriated by the Ptolemies. Zeno's letters provide ample information on how banks received money from their clients and kept it on deposit. They also tell us that Apollonius, the director of the central bank in Alexandria, made personal deposits in different branches of the royal bank. All of these sources show how frequently individuals used the bank for making deposits as well as payments. In addition, due to their highly-developed accounting system, paying debts through banks became extremely convenient, as there was an official record of transactions—an important piece of evidence in case of litigation.

The Hellenistic banking system outlived the Ptolemaic dynasty and was preserved during Roman rule with minor changes. In fact, Ptolemaic centralized banking had some influence on the Roman Empire: a curious fact is that Dio Cassius, in his well-known Maecenas speech, advocates the creation of a Roman government bank which would offer loans to everyone (especially landowners) at reasonable interest rates. The bank would draw its capital from earnings on all state-owned property.²⁵ Dio Cassius's proposal was never put into practice.

BANKING IN ROME

Since there are no Latin equivalents of the speeches by Isocrates and Demosthenes, Roman banks are not documented in as much detail as their Greek counterparts. However, we know from Roman law that banking and the monetary irregular deposit were highly developed, and we have already considered (in chapter 1) the regulations classical Roman jurists provided in this area. Indeed, Roman argentarii were not considered free to use the tantundem of deposits as they pleased, but were obliged to safeguard it with the utmost diligence. This is precisely why money deposits did not pay interest and in theory were not to be lent, although the depositor could authorize the bank to use the money for making payments in his name. Likewise, bankers took in time “deposits,” which were actually loans to the bank or mutuum contracts. These paid interest and conferred upon bankers the right to use the funds as they thought fit for the duration of the agreed-upon term. References to these practices appear as early as 350 B.C. in comedies such as Plautus's Captivi, Asinaria and Mostellaria, and Terence's Phormio, where we find delightful dialogues describing financial operations, clearings, account balances, the use of checks and so on.²⁶ In any case, it appears the work done by professional jurists better regulated Roman banking and provided at least a clearer idea of what was and was not legitimate. However, this is no guarantee that bankers behaved honestly and refrained from using money from demand deposits to their own benefit. In fact, there is a rescript by Hadrianus to the merchants in Pergamum who complained about the illegal exactions and general dishonesty of their bankers. Also, a written document from the city of Mylasa to the emperor Septimius Severus contains a decree by the city council and the people aimed at regulating the activities of local bankers.²⁷ All this suggests that, while perhaps less frequently than was common in the Hellenic world, there were in fact unscrupulous bankers who misappropriated their depositors' funds and eventually went bankrupt.

THE FAILURE OF THE CHRISTIAN CALLISTUS'S BANK

A curious example of fraudulent banking is that of Callistus I, pope and saint (217–222 A.D.), who, while the slave of the Christian Carpophorus, acted as a banker in his name and took in deposits from other Christians. However, he went bankrupt and was caught by his master while trying to escape. He was finally pardoned at the request of the same Christians he had defrauded.²⁸

Refutatio omnium haeresium, a work attributed to Hippolytus and found in a convent on Mount Athos in 1844, reports Callistus's bankruptcy in detail.²⁹ Like the recurring crises which plagued Greece, the bankruptcy of Callistus occurred after a pronounced inflationary boom followed by a serious confidence crisis, a drop in the value of money and the failure of multiple financial and commercial firms. These events took place between 185 and 190 A.D. under the rule of the Emperor Commodus.

Hippolytus relates how Callistus, at the time a slave to his fellow Christian Carpophorus, started a banking business in his name and took in deposits mainly from widows and Christians (a group that was already increasing in influence and membership). Nevertheless, Callistus deceitfully appropriated the money, and, as he was unable to return it upon demand, tried to escape by sea and even attempted suicide. After a series of adventures, he was flogged and sentenced to hard labor in the mines of Sardinia. Finally, he was miraculously released when Marcia, concubine of the Emperor Commodus and a Christian herself, used her influence. Thirty years later, a freedman, he was chosen the seventeenth Pope in the year 217 and eventually died a martyr when thrown into a well by pagans during a public riot on October 14, 222 A.D.³⁰

We can now understand why even the Holy Fathers in their Apostolic Constitutions have admonished bankers to be honest and to resist their many temptations.³¹ These moral exhortations warning bankers against temptation and reminding them of their duties were used constantly among early Christians, and some have even tried to trace them back to the Holy Scriptures.

THE SOCIETATES ARGENTARIAE

Banker associations or societates argentariae were a peculiarity of banking in the Roman world. Financial contributions from members supplied the capital to form them, and this capital was relied upon to pay debts. However, as banks were of particular public interest, Roman law established that members of the societates argentariae must guarantee deposits with all of their assets.³² Hence, members' joint, unlimited liability was a general principle of Roman law, intended to minimize the effects of fraud and abuse by bankers and to protect depositors' right to recover their money at any time.³³

The argentarii conducted their business in a special place called a taverna. Their books reflected the debits and credits made to their clients' checking accounts. Roman bankers' books qualified as evidence in court and had to be kept as set down in the editio rationum, which stipulated the way accounts were to be dated and managed.³⁴ Bankers were also called mensarii, after the mensa or counter where they originally carried out their money-changing activities. Much like today's banking licenses, the mensa could be transferred. In Rome, however, as the state owned the premises where banking took place, it was the right to operate (granted by the state) that was transmitted. A transfer could include all furniture and implements of the taverna, as well as financial assets and liabilities. In addition, bankers formed a guild to defend their common interests and obtained significant privileges from emperors, especially Justinian. Some of these privileges appear in the Corpus Juris Civilis. ³⁵

The economic and social disintegration of the Roman Empire resulted from inflationary government policies which devalued the currency, and from the establishment of maximum prices for essential goods, which in turn caused a general shortage of these goods, the financial ruin of merchants and the disappearance of trade between different areas of the Empire. This was also the end for banking. Most banks failed during the successive economic crises of the third and fourth centuries A.D. In an attempt to contain the social and economic decay of the Empire, additional coercive, interventionist measures were taken, further accelerating the process of disintegration and enabling the barbarians (whom Roman legions had defeated repeatedly and kept at bay for years) to devastate and conquer the remains of the ancient, thriving Roman Empire. The fall of the classical Roman world began the long medieval period, and it was nearly eight hundred years later that banking was rediscovered in the Italian cities of the late Middle Ages.³⁶