Italian Banking, 1919–1936

Abstract

Examines the evolution of the Italian banking industry, with particular reference to the behaviour of the mixed (universal) banks, and to the relief operations that culminated in extensive state involvement in industry. The process began with the banking crisis of 1921–22, when the State used the Bank of Italy to rescue both—a major bank and a large industrial concern. In the 1920s, the banks acquired industrial stocks on a massive scale, and many ended with risky and illiquid portfolios. When industrial demand collapsed in 1931, there was the potential for a major banking crisis, and this was only averted by substantial secret loans and last‐resort credits to the banks from the State and the Bank of Italy. State ownership of the industrial concerns was formally recognized by the creation in 1933 of IRI (Istituto per la Ricostruzione Industriale), and the banking system was reorganized under the Banking Act of 1936.

Did governance fail universal banks? Moral hazard, risk taking, and banking crises in interwar Italy1

“…See Confalonieri, Banche Miste e Grande Industria , pp. 438–9; Toniolo, ‘Italian banking’, p. 303; Forsyth, ‘Rise and fall of German‐inspired mixed banking’, pp. 192–5.…”

Italy and the First Age of Globalization, 1861-1940

“…Hungary, and Germany, where there was a very similar mixed or universal banking system, in which banks were vulnerable because of the large portfolio of industrial participations that they held in their portfolio, there was no open banking crisis, though this is what some outside observers, such as the well-informed Swiss financier Felix Somary, had predicted (Toniolo 1995). Bank deposits indeed only fell by 3.6 percent in 1931 (Mattesini and Quintieri, 1997, p. 275).…”

From the universal bank to the universal bank: a reappraisal

“…In the 1910s-1920s, universal banking was considered to be responsible for the higher growth rates reached by the German economy compared to the British economy. It is rather complex to assess its actual contribution to growth, as, in the interwar period, universal banking did not prove to be an effective institution at all, but was, instead, related to financial instability, sometimes for the lack of coherent credit policies (see Toniolo 1995). During the Golden Age, German mixed banks did not act as a major factor of growth nor did they propel industrial investments, but, at best, were part of a virtuous institutional system that favoured longer-term investment decisions, the so-called 'Rhineland capitalism'.…”

“…The ensuing stagnation and the following crisis of the early 1930s paved the way for major regulation. From 1932 to 1936, the Italian banking system was re-organized by Alberto Beneduce, a technocrat entrusted by Mussolini to bail out the mixed banks and to re-organize the whole financial system (see Toniolo 1995). The Banking Act of 1936 formally banned universal banking and imposed a strict criterion of credit specialization according to the maturity of liabilities and assets.…”

“…The bail out of the three major mixed banks (Banca Commerciale, Credito Italiano and Banco di Roma) entailed a deep re-organization of the whole banking system. Finally, in 1936-37, the new Banking Law banned universal banking as an intrinsic factor of instability (see Toniolo 1995).…”