How the Knights Templar Laid the Foundation for Modern Banking
Modern banking has made our lives incredibly convenient, providing easy access to financing even in the remotest corners of the world. But did you know that the roots of this sophisticated financial system can be traced back to the 12th century? It all began with a religious order known as the Knights Templar, whose innovations laid the groundwork for the banking systems we rely on today.
The Birth of the Knights Templar
The Knights Templar, officially called the Poor Fellow-Soldiers of Christ and of the Temple of Solomon, was a Catholic military order founded in the 12th century. Their initial mission was to protect Christian pilgrims traveling to Jerusalem and to safeguard their possessions from the constant threat of bandits and highway robbers.
In those days, before the advent of paper money, travelers carried gold and silver coins—the only form of liquid capital at the time. This made them prime targets for thieves. The Knights Templar, a group of highly trained fighters sworn to poverty, established Templar houses throughout the Holy Land, where pilgrims could securely deposit their valuables.
Each Templar house was equipped with strongboxes for safekeeping. Deposited money could only be accessed by the owner or someone with explicit permission from the owner. The Templars’ formidable combat skills and well-armed presence ensured that these houses were safe from robbers. Importantly, the Templars did not charge fees or interest for their services, nor did they use the deposited funds for their own purposes, making Templar houses the most trustworthy option for safeguarding valuables.
The Invention of the Letter of Credit
As the Templars expanded their network, establishing houses from the Atlantic to Jordan, they faced the logistical challenge of transporting large amounts of money and precious metals. To address this, they introduced the concept of the letter of credit, a groundbreaking innovation in financial services.
With a letter of credit, a person could deposit money at a Templar house in one location and then travel to another Templar house, present the letter, and withdraw the equivalent amount. This system allowed for safer and more convenient travel, reducing the need to carry large sums of money across dangerous territories.
The Templars as Financial Managers and Almoners
Over time, the Knights Templar became closely associated with several European monarchs, serving as financial managers and treasurers for the kings of France, England, Scotland, Ireland, and other kingdoms. In fact, the French treasury was housed in a Templar house in Paris.
The Templars were entrusted with collecting taxes, such as the Saladin Tax levied in England after the capture of Jerusalem by Saladin. They also took on the role of almoners, responsible for distributing royal largesse to the public.
Given their expertise, the Templars were often called upon to serve as accountants. When a king or bishop had doubts about someone’s accounts, a Templar was often brought in to audit them, ensuring accuracy and fairness.
The Templars as Financial Fixers
Beyond safekeeping, accounting, and tax collection, the Templars offered a range of other financial services. They brokered deals and facilitated the buying and selling of assets, including the notable purchase of the island of Oleron by King Henry III, which was negotiated by the Templars.
The Templars also provided loans and lines of credit to businesses and townships. Their reputation as incorruptible warriors made them the go-to choice for safeguarding prized possessions and rare commodities. At the height of their influence, the Templars were trusted by kings, church officials, and businessmen alike. So great was the trust in them that at one point in the 12th century, the Crown Jewels were kept in a Templar house as collateral for a loan.
The Downfall of the Templars
However, the Templars’ extensive involvement in financial activities eventually contributed to their decline. What began as a mission to protect Christian pilgrims evolved into a vast financial enterprise. Over time, the Templars were increasingly seen not as holy warriors, but as powerful financiers—a perception that eroded their religious image and contributed to their eventual downfall.
Despite their tragic end, the legacy of the Knights Templar lives on, particularly in the financial innovations they pioneered. Their contributions laid the foundation for many of the banking practices we take for granted today, making them an integral part of the history of modern finance.