War often brought enormous deficits. The bills of exchange issued by Italian banking groups without any physical transaction behind them could be understood as banknotes issued to offset those deficits; they existed only on the books.
The settlement period for a bill of exchange could also vary in length. If a merchant took a bill issued by King Philip II of Spain, payable six years later, to cash it, the bank would certainly charge him a high discount rate.
Just how high was a king's credit rating?
During the Hundred Years' War, the kings of England and France both owed bankers vast sums of money. As bankers to kings, they had thought they could use the various commercial and trade privileges granted by the royal houses to forcibly collect other debtors' debts. This would drive some nobles into bankruptcy, and they would then run to the king's side to weep and complain.
A king's default would certainly ruin his credit, but the bankers who could not recover their money would go directly bankrupt. When the Black Death ravaged Europe, the collapse of the great Italian banks Bardi and Peruzzi triggered a series of domino effects. Florence's financial industry collapsed as well, affecting nearly half of Europe's population and causing damage no less severe than the Black Death.
The direct cause of the Medici Bank's downfall was its political loss of power. After the Italian Wars began, the army of France captured Florence, and the Medici family was expelled. Later, because of the Papal Meridian, Spain accepted Pope Alexander VI's terms and supported the Medici family and other old nobles in building mountain fortresses behind Florence to besiege it. In the end, the Republic of Florence fell in 1522. In 1528, the Bank of Florence reopened and, for the first time,