The Structure and the Management of the Medici Bank

Report

1. Study the structure and the management of the Medici Bank.

Structure:

1. The Medici Bank was the largest financial institutions in Florence, though not the most numerous. They were the major movers and shakers in the European economy. They had vast accumulations of capital, multi-generational projects, and were a mainstay of the Florentine economy, because not only did they deal in time deposits, demand deposits, and discretionary deposits, they expended most of their efforts in funneling their capital into commerce and bills of exchange. Such bills could be a hidden and legal method to create loans bearing interest. 
2. In Renaissance there are centralized and Decentralized Florentine banking firms. Centralized Florentine banking firms adopted by the Peruzzi, the Bardi, and the Acciaiuoli companies only had one partnership and finally they failed.
3. The essential structure was that of a single partnership based in Florence, which immutably held the lion's share of shares in each branch, which were themselves incorporated as independent partnerships. At the end of the year on March 24 (by the then used calendar), each partnership would be dissolved, although the Medici could dissolve a partnership at any time with six months' notice. The books were thoroughly gone through and checked, and a reckoning of profits would be made. Indeed, the structure of the Medici Bank resembles nothing so much as the modern holding company.

Management:

1. Bills of exchange:

Draft is issued by the drawer, demands on sight or within a certain period of time, a certain payment to the payee or bearer unconditionally notes. Bill of exchange is the most widely used in international settlement of a credit tool.

Draft is devised into Bank's Draft and Commercial Draft. The drawer of the former is a bank, bank of the drawee and of the drawer the latter is the enterprise or individual, the payer can be enterprises, individual or bank.

1. Reason:

Usury was still banned by the Church in this period, with an interpretation concisely expressed as Quidquid sorti accedit, usura est ("Whatever exceeds the principal is usury"). So the Medici Bank could not openly adopt the modern formula of promising to pay interest on demand deposits and loaning out a fraction of the deposits at greater interest to pay for the interest on the deposit, since a depositor would gain revenue on the principal without any risk to the principal, which would have made both parties usurers and sinners; nor could they charge fees or other such devices.

1. Double-entry bookkeeping:

Double entry bookkeeping is originated from the Medici bank's libro segreto which had the details of the Medici bank 's establish and its early trading records.

In accounting, Double-entry bookkeeping is a system of bookkeeping so named because every entry to an account requires a corresponding and opposite entry to a different account. For instance, recording earnings of $100 would require making two entries: a debit entry of $100 to an account called "Cash" and a credit entry to an account called "Income."

The earliest known written description of double-entry accounting comes from Franciscan friar Luca Pacioli. In deciding which account has to be debited and which account has to be credited, the golden rules of accounting are used. This is also accomplished using the accounting equation: Equity = Assets − Liabilities. The accounting equation serves as an error detection tool. If at any point the sum of debits for all accounts does not equal the corresponding sum of credits for all accounts, an error has occurred. It follows that the sum of debits and the sum of the credits must be equal in value.

Double-entry bookkeeping is not a guarantee that no errors have been made—for example, the wrong ledger account may have been debited or credited, or the entries completely reversed.

1. Try to locate the twelve Federal Reserve Bank cities on a map of the United States.[pic 1]

There are 12 regional Federal Reserve Banks which are in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. Among these regional banks, New York has the largest assets value, followed by San Francisco and Atlanta.

1. Study the structure and operation of the Federal Reserve Bank. Do some research on Allen Greenspan and his major contributions to American economy.

Allen Greenspan (Monetary Influence):

1. Who was born on March 6, 1926, is an American economist and chairman of the Board of Governors of the Federal Reserve System, whose chairmanship (1987–2006) continued through the administrations of four American presidents.
2. As chairman of the Council of Economic Advisers (1974–77) during Gerald Ford’s presidency, Greenspan promoted policies that caused the rate of inflation to drop from 11 to 6.5 percent. In 1977 Greenspan returned to his firm in New York and became an adjunct professor at New York University, where he was awarded a Ph.D. in economics.
3. He was given a share of the credit for the longest official economic expansion in U.S. history (March 1991–February 2000). His influence on global finance was considered so extensive that in September 1999 The Sunday Times of London named him one of the three most powerful people in the British Isles. Location of 12 Federal Reserve Bank.

The Structure:

U.S. Financial System is composed of commercial bank and the Federal Reserve System (the Central Bank System), and the Federal Reserve System is consisted of three parts— the Federal Reserve Board, the Federal Reserve’s Open Market Committee and the Federal Reserve Bank.

Here is going to introduce the personal structure and the income structure.

1. The personnel structure

Every bank comprises one bank president and nine directors. About the nine directors of the Federal Reserve Bank, the first three are chosen from  bankers, and the second three are chosen from industry、labor、agriculture consumer and the last three are chosen from no bankers、employees or shareholders