In the course of the historical development of the economy the credit demands by customers reached proportions far in excess of the financial resources of individual banking concerns. This was especially the case in all business transactions where credit was sought not by individual concerns, but by .larger corporate bodies. In feudal times it was the territorial overlords who needed credit on a large scale. Road building and other provisions for traffic required great capital outlays, even in peacetime. But it was especially preparations for and campaigns of war which required more money than was readily available. Here the solution was to raise loans the repayment of which was spread over a great many years.
As a result of this development the banker ceased to be a money lender with his own capital and became a money dealer, money transmitter and money lender handling the capital of others, who helped his customers to obtain money from third persons. The retinue of nearly all the larger Ducal courts included a so-called Court factor, whose duty it was to raise money for the Court and the State. In time these factors became permanent advisers and managers in matters concerning money. They did much of value, but at times their advice led to taxes which were hard on the underdog. Not a few amongst them earned the hatred of the populace.
The princes made every endeavor to retain the services of their Court factors, and, in addition to making profits by way of interest and commission, they were protected from persecution, and often also rewarded with external honors, such as elevation to the nobility, permission to own land and similar privileges. The procurement of money by means of large loans led to the sub-division of the amount of the loan into smaller segments which were then sold to the general public. This method of raising money involved considerable risks because the borrower demanded a firm undertaking that he would be granted the loan, but the banker could not sell the segments until after the loan had been granted. This led to the formation of consortiums which undertook the acceptance of loans, and thereby spread the risks over a number of banking firms. This method was facilitated by making the loan segments (bonds) negotiable, so that the individual purchaser of such bonds could resell them at any time. This negotiability provided the impetus for the creation of the stock exchanges.
In addition to the demand for credit by public bodies, the development of the modern economy led to a massive need for credit in production and trade, a need which could no longer be met by the private banking firms. The formation of consortiums soon proved to be an inadequate answer to the great increase in private industrial credit. This led to the development of other forms of industrial enterprise, such as joint-stock banks, limited companies, and savings banks, which existed side-by-side with the private individual banking concerns.