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Topics: Bank, Finance, Central bank, Money, House of Medici / Pages: 1 (263 words) / Published: Apr 28th, 2014
Sibel Çekirdekçi

What is the difference between Medici and Rothschild of approach to risk management?

The key to the Medici bank success was diversification. Earlier, European banks had been monolithic and very vulnerable to default by a single bad borrower. But the Medici bank was made up of multiple interlocking partnerships, each in some way independent from the rest. The Medici bank worked towards a common aim of lowering the borrowing costs for traders. The business model used by the Medici bank involved used scale and diversity to spread out risks. Also by focusing on currency trading rather then just lending they reduced their exposure to defaulters. However, they were not invulnerable and faced losses because of over generous debts and blue blooded defaulters. He gave the banking industry a logical business model to diversify risks and reduced interest rates.

Rothschild trained his five son about art of money creation and send them out to the major financial centres of the world to create and dominate the central banking systems. Rothschild has created a new style of international business,it was resistant to local attacks. In 1819, anti-Semitic violence broke out in many parts of Germany. Rothschild bank in Frankfurt was also attacked, their fortune was not damaged because it was distributed different centers. In brief by using cosmopolitan method Rothschilds family achieved justifying the risk.

As a result both families were used diversification method. Main difference between them Medici reduce the risk by using different investment tool . On the other hand Rothschild eliminated risk by using different location for his banks.

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