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The story
The institution was established in 1893 from the combination of three major banks in Italy (after the Banca Romana scandal). The new central bank first issued banknotes during 1926. Until 1928, it was directed by a general manager and after this time by a governor elected by an internal commission of managers, with a decree from the president of the Italian Republic, for a term of seven years. In 1863, the crisis of the world money market created panic and the rush to the counters to collect the metallic currency in exchange for the banknotes. The Italian government responded in 1866 by introducing the fiat and legal tender of paper money. The government was accused in this way of favouring the issuing banks, and a long debate called the "banking question" arose about the advisability of having one or more issuers.
The Minghetti-Finali law of 1873 established the mandatory consortium of issuing institutions among the six existing issuing institutions, the National Bank of the Kingdom of Italy, Banca Nazionale Toscana, Banca Toscana di Credito, Banca Romana, Banco di Napoli, and Banco di Sicilia; the measure proved insufficient. Following the Banca Romana scandal, the reorganization of the issuing institutions became necessary.
Establishment
Law no. 449 of 10 August 1893 of the Giolitti I government established the Bank of Italy through the merger of four banks: the National Bank in the Kingdom of Italy (formerly Banca Nazionale in the Sardinian States), the Banca Nazionale Toscana, the Banca Toscana di Credito for the Industries and Commerce of Italy and with the liquidation management of Banca Romana. With a complex series of mergers between these banks, the current Bank of Italy was formed. Some families of bankers, historical partners: Bombrini, Bastogi, and Balduino were the supporters of the operation. The institute enjoyed (together with the Banks of Naples and Sicily) the issuing privilege, it also acted as a "bank of banks" through the rediscount of bills, but did not have supervisory powers over other banks.
The bank remains a private limited company and was headed by a director. From 1900 to 1928, Bonaldo Stringher was the director and gave the Bank the role of manager of Italian monetary policy and lender of last resort, bringing it closer to a modern central bank. In particular, he understood that a central bank cannot aim at maximizing profit (which is achieved by printing as much paper money) but must instead aim at price stability. In 1907, the Bank of Italy coordinated the rescue of the Italian Banking Company, a major lender of Fiat, an operation that ended with the absorption of the bank in crisis into the Italian Discount Bank. In 1911 the central bank organized a consortium to rescue the steel companies (Acciaierie di Terni, Ilva and others) of which the Bank of Italy was directly creditor, financing the operation also through the issue of banknotes.
In 1912, the credit institute for cooperation, with social purposes, was established, led by the Bank of Italy and also participated by public bodies, savings banks, Monte dei Paschi di Siena, the Cassa di Previdenza, and the Credit Institution for the Cooperatives of Milan. The institute in 1929 was transformed by its director Arturo Osio into the Banca Nazionale del Lavoro. In 1913, the Subsidy Consortium was established, led by the Bank of Italy and also participated by the Banks of Naples and Sicily, some savings banks, Monte dei Paschi di Siena and by the San Paolo Bank of Turin. In 1922, the Consortium saved Ansaldo and took control of it. In 1923, it did the same with Banco di Roma. Also in 1913, Francesco Saverio Nitti drew up a bill that entrusted the Bank of Italy with the supervision of other banks, but the private banks managed to avoid its approval. In 1914, the Bank of Italy assisted the Banco di Roma, which had to devalue its capital due to losses reported in the activities in the eastern Mediterranean.
Banking Law of 1926 and aftermath
In 1921, after World War I, it was always the Bank of Italy that led the consortium that managed the liquidation of the Italian Discount Bank and saved the Banco di Roma once again from crisis. In 1926, the Italian fascist government of Benito Mussolini undertook a major reorganization of the monetary system, partly motivated by the desire to assert the state's dominance over the private credit system and especially the two Milanese investment banks, Banca Commerciale Italiana and Credito Italiano. The context of the new legislation was also affected by the ongoing turmoil affecting banks affiliated with the Christian democratic Italian People's Party, such as Credito Nazionale.
R.D.L. 812 of 6 May 1926 granted the Bank of Italy an exclusive right to issue currency, terminating the prior issuance privileges of the Banco di Napoli and Banco di Sicilia and abrogating the Royal Decree of 28 April 1910, no. 204. Subsequently, R.D.L. 1820 of 6 November 1926 entrusted the Bank of Italy with the task of supervising savings banks. Also in 1926, the Subsidy Consortium was reorganized as Istituto Liquidazioni, still under the control of the central bank. In 1933 it would be separated from the bank and absorbed by the newly established Istituto per la Ricostruzione Industriale. In 1928, the Bank was reorganized. The general manager was joined by a governor with greater powers. While all the banks were in very bad conditions, the Banca Nazionale del Lavoro of the self-styled socialist Arturo Osio, in 1929 confiscated eleven Catholic banks, and in 1932 the Banca Agricola Italiana which had financed SNIA Viscosa di Gualino.
Banks and the economy of the 1930s
Italy in the 1930s had an agricultural economy, a small number of industrial families who relied on the subcontracting of local suppliers, formed by a myriad of small family-run businesses, not international and whose survival depended on large groups of industrialists, in turn, linked to commercial banks. The savings from agriculture flowed into the rural coffers, the popular banks and the cooperative credit which financed the life of the provincial crafts, small businesses and construction. The job of the banks was to match the customers' short-term investment horizon with the long-term investments of large groups (Rediscount). National banks turned to local banks that had large deposits of deposits for smaller, low-risk loans. The Cassa Depositi e Prestiti channelled postal savings in favour of local authorities, public institutions and infrastructures, which were a way of absorbing mass unemployment, through a vast program of public works. The ideological basis of the law was that savings are a matter of national interest and must be protected by the State, a principle also enshrined in the Republican Constitution and concretized in the first place in the law establishing the interbank guarantee fund and in the policy of public bailouts.
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The banking legislation of 1936–1938 established a banking supervisory agency, the Ispettorato per la Difesa del Risparmio e l'Esercizio del Credito (IDREC), chaired by the Bank of Italy's governor. The bank no longer had the right to give credit to individuals but only to other banks as a lender of last resort. Finally, it had the power to require other banks to deposit a portion of the available funds with the same central bank; by varying the share, the Bank of Italy could operate credit tightening or enlargements. The law established certain minimum capital and management requirements necessary to guarantee risk management, stability and operational continuity: minimum capital, minimum ratio between loans and deposits, credit limits, provisions for compulsory reserve.
IRI and World War II
After the "defenestration" of Bonaldo Stringher, Alberto Beneduce took over and was forced to retire in 1936 after a "heart attack" during a meeting at the Bank for International Settlements in Basel. They conceived the duty of the banks towards the public interest of the country, as the subject who had to collect savings to lend them to entrepreneurs, as a tool for development and growth. The process was to be led by a "circulation bank", which would increase the speed of circulation of money in the real economy.
The Central Bank supported the fascist monetary policy of defending the stability of the Italian lira (known as the "Quota 90"), through the reduction of discounts and advances, and financing the enormous expenses of wars in the 1930s and 1940s through the unlimited issuing of money (and the "inflation tax", not progressive with income), as Hjalmar Schacht did in Germany under Hitler. Operationally, the government issued and sold debt securities to finance military spending, and the military industry reinvested its government profits in the purchase of such bonds as a de facto advance on future orders, fueling a closed financial circuit. In simple terms, this was something like the ECB issuing money and lending it to private banks who keep it in their current accounts with the ECB. This mechanism was called "capital circuit". The printing of tickets and the scarcity of consumer goods created an overabundance of money that poured into bank deposits, allowing a new expansion of credit, which was directed in favour of the economic sectors themselves. given that the state paid the banks a higher interest on the BOTs than the savers. The absorption of savings into investments in fixed capital had already taken place in the First World War and industries were working with existing production capacities. Without consumption and investments, public spending by the state remained. The war could start with a modest tax levy and inflation within the normal limits in the first months, before the black market and ration cards.
The situation followed the conflict of interest between the state entrepreneur and the state bank, albeit in the name of a higher ideological purpose. In 1938, the government decreed the power to directly appoint presidents and vice-presidents of the board of directors of banks. Beneduce planned to have a public bank take over the long-term credit of large companies, financed with bonds of equal duration for public works, energy, and industry. After them, the Central Bank maintained a low-profile monetary policy, consistent with the directives of fascism. IRI operated differently, in agreement with the Italian banks and industries that supported fascism. The banks renounced exercising an option by "converting" the debts into shares (or a law in this regard), preferring not to enter directly into the ownership of the industrial groups. The groups transferred the bank debts to IRI, which became the new owner in exchange for shares (at the book value, not always the same as the market value), until they held control of the property and therefore of management. The debt of the IRI rose to nine and a half billion lire at the time, two-thirds of which were paid within the war, because they were drastically diluted by inflation which has the effect of lowering the real weight of debts until the accounting entries are cancelled. of issuance, but also to halve the purchasing power of small savers. The remaining debt was paid by 1953.
The IRI in turn had debts towards the Bank of Italy for five billion lire: the State issued bonds for IRI for one and a half billion, "sterilizing" the debt that should have been repaid with "annuity" interest. accrued until 1971. The change of constitutional order and currency (exchange rate for conversion), and inflation meant that IRI (and industries) paid the Bank of Italy less than a third of the sum. After the armistice of 8 September, the German authorities demanded the delivery of the gold reserve. 173 tons of gold were first transferred to the Milan office, and then to Fortezza. Traces of it were subsequently lost. In the 1960s, the public debt increased and so did inflation. Governor Guido Carli made a policy of credit crunch to stop inflation, particularly in 1964. In general, the Bank of Italy played an important political role under this governorship. Other credit crunches were implemented between 1969 and 1970 due to the flight of capital abroad and in 1974 as a result of the oil crisis. In March 1979, the governor of the Bank of Italy, Paolo Baffi, and the deputy director in charge of supervision, Mario Sarcinelli, were accused by the Rome public prosecutor of private interest in official acts and personal aiding and abetting. Sarcinelli was arrested, and released from prison only after being suspended from duties relating to surveillance, while Baffi avoided prison due to his age. In 1981 the two will be completely acquitted. Subsequently, the suspicion will emerge that the indictment was wanted by P2 to prevent the Bank of Italy from supervising Roberto Cavali Banco Ambrosiano.
Postwar period
The postwar inflation, also due to the Am-lire, was fought with the credit crunch desired by the governor Luigi Einaudi, which was obtained through the compulsory reserve on deposits. In particular, the instrument of compulsory reserves of banks at the central bank was used, introduced in 1926 but never really applied. In 1948 the governor was given the task of regulating the money supply and deciding the discount rate. The universal banks were the ones that had gained the most from war and inflation (under the Authorization Regime of the Interministerial Credit Committee), with the greatest growth in deposits.
Along with the recovery, speculative stocks and capital flight abroad appeared. Credit limits were no longer tied to equity, as equity figures were completely distorted by inflation. The squeeze on lending, the liquidity crisis and the Eenaudian deflation pushed operators to finance themselves by placing stocks on the market and returning capital, thus blocking the rise in prices; and by resorting to self-financing (even without distributing profits), aided by the fact that inflation had made it possible to quickly amortize fixed assets whose book value was now nominal.
During the years of the Reconstruction, governor Donato Menichella governed the issue in a gradual and balanced way: he did not implement expansionary manoeuvres to encourage growth but was careful to avoid the creation of credit crunches. In this, he was helped by the low public debt. Its monetary policy program was stability for development. A part of the available bank savings was channelled annually to the Treasury to cover the budget deficit (in the current year), while during his tenure the public debt of the state never rose above 1% of GDP, until 1964. In July 1981, a "divorce" between the State (Ministry of the Treasury) and its central bank was initiated by the decision of the then Treasury Minister Beniamino Andreatta.
From that moment on, the institute was no longer required to purchase the bonds that the government was unable to place on the market, thus ceasing the monetization of the Italian public debt that it had carried out since the Second World War up to that moment. This decision was opposed by the Minister of Finance Rino Formica, who would have liked the Bank of Italy to be required to repay at least a portion of these securities, and from the summer of 1982 a series of intra-government verbal clashes between the two ministers known as the wives' quarrel, which was followed by the fall of the second Spadolini government a few months later. The divorce between the Ministry of the Treasury and the Bank of Italy is still considered by economic doctrine as a factor of great stabilization of inflation (which went from over 20% in 1980 to less than 5% in the following years) and a central prerequisite for guarantee the full independence of the technical monetary policy body (central bank) from the choices related to fiscal policy (under the responsibility of the government), but also a factor of considerable incidence of growth of the Italian public debt. The law of 7 February 1992 n. 82, proposed by the then Minister of the Treasury Guido Carli, clarifies that the decision on the discount rate is the exclusive competence of the governor and must no longer be agreed in concert with the Minister of the Treasury (the previous decree of the President of the Republic is modified in relation to the new law with the Presidential Decree of 18 July).
Euro and 2006 reform
The Legislative Decree 10 March 1998 n. 43 removes the Bank of Italy from management by the Italian government, sanctioning its belonging to the European system of central banks. From this date, therefore, the quantity of currency in circulation is decided autonomously by the Central Bank. With the introduction of the Euro on 1 January 1999, the Bank thus loses the function of presiding over national monetary policy. This function has since been exercised collectively by the Governing Council of the European Central Bank, which also includes the Governor of the Bank of Italy. On 13 June 1999 the Senate of the Republic, during the XIII Legislature, discussed bill no. 4083 "Rules on the ownership of the Bank of Italy and on the criteria for appointing the Board of Governors of the Bank of Italy". This bill would like the state to acquire all the shares of the institute, but it is never approved.
On 4 January 2004, the weekly Famiglia Cristiana reportsed for the first time in history the list of participants in the capital of the Bank of Italy with the relative shares. The source is a Mediobanca Research & Studies dossier, directed by the researcher Fulvio Coltorti, who, by investigating backwards on the balance sheets of banks, insurance companies and institutions, and gradually noting the shares that indicated a shareholding in the capital of the Bank of Italia managed to reconstruct a large part of the list of participants of the highest Italian financial institution. On 20 September 2005, the list of shareholders was officially made available by the Bank of Italy; until now it was considered confidential. On 19 December 2005, after intense press campaigns and criticism of his actions in the context of the Bancopoli scandal, Governor Antonio Fazio resigned. A few days later, Mario Draghi, who took office on 16 January 2006, was appointed in his place.
The law of 28 December 2005, n. 262, as part of various measures to protect savings, introduces for the first time a term to the mandate of the governor and the members of the directorate. It also dealt with (article 19, paragraph 10) the issue of ownership of the capital of the Bank of Italy, providing for the redefinition of the Bank's shareholding structure by means of a government regulation to be issued within three years of the law's entry into force. This regulation should have governed the methods of transferring shares held by "subjects other than the State or other public bodies". The delegation made by law 262/2005, therefore, expired without the regulation being issued, but the right to ownership of the shares of the current participants is in any case safeguarded by a provision of the Bank's Statute. On the basis of law 262/2005, Mario Draghi becomes the first governor to have a term of six years, renewable once for a further six years.
From Wikipedia’s article on Bank of Italy, shared under CC BY-SA 4.0.3