In the Middle Ages and at the beginning of modern times, banking activities in France experienced a belated and more difficult development than in neighbouring countries such as Italy, the Netherlands or the United Provinces.
The overwhelmingly precarious agriculture and a very limited participation on the international exchange scene, the dominant influence of the catholic church as well as the priests' sermons, long denouncing the practice of loaning at interest, and a very hostile mentality towards anything that resembled usury rendered all big merchants suspect and hindered the free development of their activities.
Nevertheless the expansion of trade - which first began in the twelfth and thirteenth centuries through the activities of the fairs in Champagne and then through the dynamism of the commercial markets such as the large royal ports or the city of Lyons - as well as the financial needs of the royal government, all made the use of banking practices more and more indispensable. Banking methods, generally invented in Italy, arrived in France: manual exchange transactions and the use of bills of exchange for transferring funds, as well as the credit operations which developed in connection with those operations, deposits, credit transfers and various investment.
The bankers in these professions, who sometimes grew quite rich, were primarily foreigners who lived cut off from the national community, especially Italians and Jews. These Italians were called Lombards; in Paris, already a banking city, the moneychangers from Piedmont set themselves up in a street which has since then been called rue des Lombards. Some of the French also worked in banking. One of them was the famous Jacques Coeur (1395-1456); most of his profits, however, came from his role as royal purveyor of luxury products. He fell into disgrace in 1451 and his possessions were confiscated. For the French, banking was still considered more a venture than an economic enterprise like any other.
The first real expansion of banking in France took place in the eighteenth century. Admittedly, the failure of John Law's ambitious endeavour, from 1716 to 1720, had serious consequences. His Banque Générale, which was granted the privilege of issuing banknotes, was intended at the same time to rescue public credit, which was severely affected by the cost of the wars waged by Louis XIV, and to amortise the crushing state debt as well as to ensure the recovery of the economy by developing commercial credit. A victim of unbridled speculation and excessive issuing of fiduciary currency, the 'system' collapsed, casting discredit on all banking enterprises for decades to follow.
The progress of the economy, however, and of big business in particular, as well as the continual need for the state to borrow money, led to the progressive organisation of a credit structure which appears to have been relatively diversified under Louis XVI, and which was based, in many small provincial towns, on the already numerous discounters and local banks which ensured the circulation of bills of exchange to finance trade and which gave commercial credit.
Some powerful banking houses were established in active cities such as Lyons, Bordeaux, Saint Malo, and above all Paris. Although there were leading catholic bankers who originated from France, many bankers were from foreign countries, especially Switzerland, and were protestant, such as the Hottinguers of Zurich, or the Mallets, who belonged to an old Huguenot family, settled in Geneva. Their activities were multiple: they financed international trade, put their international credit at the service of the sovereign, intervened in the stock market and participated in the important businesses of the time: armament, maritime insurance and the first industrial enterprises. The Caisse d'Escompte (discount bank), created in 1776 by Turgot, was managed by the most powerful of these bankers. Banking thereby became a true enterprise, which enjoyed real prosperity during the decade preceding the Revolution, and was no longer a chancy venture.
The French Revolution, met at first with sympathy by many bankers, soon began seriously to disrupt the conditions of credit. The loss of Santo Domingo, the war with allied Europe, the flight of capital due to emigration, and the unrest and hostility shown by the people towards all big businessmen all resulted in the bankers being forced to liquidate their businesses. After the fall of Robespierre, however, on the ninth of Thermidor (27 July 1794), the needs of an economy that lacked means of payment as well as those of the state favoured a renaissance of credit and the reappearance of big bankers. Soon after the coup d'Etat of Brumaire ( 9 November 1799), which closed the era of the Revolution, the most powerful of these bankers founded, with the complete agreement of Bonaparte, the Banque de France, responsible for operations of discounting and loans on securities with the help of bills which the bank was authorized to issue. The credit structures which were then set up, however, were confronted with an often troubled economic climate due to constant wars, and it was necessary to wait for the return of peace, with the collapse of the empire, before these structures could fully evolve.
Source: Alain Plessis