Bank of Italy
The Bank of Italy is the national central bank for Italy within the Eurosystem. It was the Italian central bank from 1893 to 1998, issuing the lira.
In addition to its monetary role, the Bank of Italy is also a financial supervisory authority. In that capacity, it increasingly implements policies set at the European Union level. It is the national competent authority for Italy within European Banking Supervision. It is a voting member of the Board of Supervisors of the European Banking Authority. It is Italy's designated National Resolution Authority and plenary session member of the Single Resolution Board. It provides the permanent single common representative for Italy in the Supervisory composition of the General Board of the Anti-Money Laundering Authority. It also hosts the Institute for the Supervision of Insurance, which is a voting member of the Board of Supervisors of the European Insurance and Occupational Pensions Authority. It is also a member of the European Systemic Risk Board.
History
The institution was established in 1893 from the combination of three major banks in Italy. 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, 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 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 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 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 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, no. 204. Subsequently, R.D.L. 1820 of 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. 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.The banking legislation of 1936–1938 established a banking supervisory agency, the Ispettorato per la Difesa del Risparmio e l'Esercizio del Credito, 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, 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, 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, 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, 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, and inflation meant that IRI 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.