The following is an exerpt from ‘The Crucial Centuries: the Medieval Experience’ by Francis Oakley, 1979, p92-93.
A great leap forward in financial operations occured in the 12th and 13th centuries in Catholic western Europe. It was all the more striking in that it had to be made in the teeth of the church’s attempted prohibition as usurious of practically every type of loan made at interest; but, then, those teeth were blunted somewhat by the pressing fincancial needs of the papacy itself which could ill afford to examine too closely the procedures of the bankers, whose services it needed to shuttle funds from one part of Europe to another, to help it anticipate its revenues, and to extend it credit from time to time when it had to cope with mounting deficits. In any case, in their efforts to conceal the taking of direct interest, bankers and merchants alike resorted to a whole array of complicated strategems, and even for the most zealous of investigators the detection of the usurious amid the maze of contractual arrangements could not always have been an easy task.
A broad range of contractual arrangements had been developed by the 13th century and were in use throughout the Mediteranean world, though not necessarily in the northern trade. These contracts made possible not just a rational sharing of risk but the concentration of capital in the large amounts needed to fuel the ambitious commercial operations that Italian merchants were mounting with increasing frequency in the long-distance trade. Of these new contractual forms the commenda was probably the most important and did much to promote the rapid expansion of the maritime trade. A wealthy home-based lender undertook the financial risk of putting up the capital for a single, round-trip trading voyage and received the bulk of the profits.
By the 13th century it was possible to transfer increasingly large sums of money across Europe by means of letters of exchange and without undertaking the risk of moving actual coinage. It also became possible, at least in the Mediteranean world, to cut down the risks involved in maritime trade by purchasing insurances. By the end of the century, many Italian merchants had entered the business of commercial banking and a few were specialising in it, maintaining agents in the principal cities of Europe, receiving deposits at one place and paying out at another when their depositors asked them to do so, acting as financial agents for papal and royal governments alike, amassing enviable amounts of capital, making available the large-scale credit that big commercial operations needed, and, though at much higher risk, advancing the huge, high-interest loans upon which the realisation of royal ambitions increasingly depended.