View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

61ST CONGRESS 1

2d Session

J

SENATE

/

DOCUMENT

I

N o . 575

NATIONAL M O N E T A R Y COMMISSION

The Banks of Issue
in Italy
BY

TITO CANOVAI, F. S. S.
Chief General Secretary of the Bank of Italy
W I T H AN ARTICLE BY

CARLO F. FERRARIS
Professor in the University of Padua
AND

The Text of the Italian Banking Law

Washington : Government Printing Office : 1911




NATIONAL MONETARY COMMISSION.
NELSON \V. ALDRICH, Rhode Island, Chairman.
EDWARD B. VREELAND, New York, Vice-Chair man.
J U L I U S C. BURROWS, Michigan.

J O H N W. W E E K S , Massachusetts.

E U G E N E HALK, Maine.

ROBERT W. BONYNGE, Colorado.

PHILANDER C. K N O X , Pennsylvania.

SYLVESTER C. SMITH, California.

THEODORE E. BURTON, Ohio.

LEMUEL P. PADGETT, Tennessee.

H E N R Y M. TELLER, Colorado.

GEORGE I<\ BURGESS, Texas.

HERNANDO D. MONEY, Mississippi.

ARSENE P. P U J O , Louisiana.

JOSEPH W. BAILEY, Texas.

ARTHUR B. SHELTON, Secretary.




A. PIATT ANDREW, Special Assistant to Commission.

CONTENTS.
Page.
THE

B A N K S OF I S S U E IN ITALY

5

By TITO CANOVAI, F . S. S., Chief General Secretary of the Bank of Italy.
THE

ITALIAN B A N K S OF ISSUE

205

By CARLO F . FERRARIS, Professor in the University of Padua.
THE

T E X T OF T H E ITALIAN B A N K I N G L A W




1

257




The Banks of Issue in Italy




BY

TITO CANOVAI, F. S. S.
Chief General Secretary of the Bank of Italy

3




THE BANKS OF ISSUE IN ITALY.
BY

T I T O CANOVAI, F . S. S.
PREFACE
CHAPTER I.—Origin of the Italian banks of issue
II.—The association of the banks of issue
III.—The abolition of forced currency and its effects
IV.—The Credit Foncier or realty credits of the Banca
Nazionale nel Regno d'ltalia
V.—Excess of building at Rome—The difficulties of
finance—Embarrassments
of the Banca Romana . .
VI.—The building crisis and banking subsidies
VII.—Conditions of currency in 1890—Mutual redemption
of notes among the banks of issue—Schemes for
banking reform
VIII.—Failure of the Banca Romana and the crisis of 1893
IX.—Examination of the banking act of August 10, 1893. .
X.—Parliamentary committee of inquiry—Aggravation of
the financial and economic situation—Financial and
banking provisions of Minister Sonnino and their
effect
XL—The military disaster in Africa and its consequences—The Rudini Ministry—New banking act
proposed by Minister Luzzatti
XII.—The disorders of 1898—The commercial agreement
with France—Excess of speculation—New ideas
in the management of the Bank of Italy—Noteworthy improvement in the financial situation. . . .
XIII.—The conversion of Italian rentes and its effect on the
money market—The crisis of 1907—Modifications
of the banking act
XIV.—The restoration of the banks of issue
XV.—The progress of Italy from 1894 to 190S, in comparison with England, France, Germany, AustriaHungary, Spain, and Belgium
XVI.—Conclusion




5

7
15
28
43
62
71
87

97
108
115

129

149

161

171
180

187
201




THE BANKS OF ISSUE IN ITALY.
PREFACE.
The stormy vicissitudes which the Italian banks of
issue have passed through in the last half century make
their history particularly interesting, because they show
the inevitably ruinous effects of bad banking systems and
of disregarding the strict standards by which institutions authorized to issue paper money should be rigorously governed.
The history of Italian banks, whether in good or in
evil, affords material from which may be deduced useful instruction. It shows the causes of disturbances of
circulation and credit and points to the remedies.
And yet, we may repeat, even in this regard there is
nothing new under the sun; other countries, for the same
causes and reasons had passed through these same vicissitudes before Italy experienced them and had, like Italy,
felt the pernicious effects of a wretched system of banks
of issue or their bad government, since it is not possible
to violate the fundamental laws that govern credit and
circulation, or any other economic laws, without being
obliged to suffer the disastrous consequences sure to
follow.
Indeed, the banking disasters of Italy may be considered as typical repetitions of those which had already
happened in other countries. What, for example, is
the substantial difference between the large subsidies




7

National

Monetary

Commission

given by the Italian banks of issue, particularly the
Banca Nazionale, to the building industry (and, in gen
eral, to town and country property) and the disastrous
application of the theory of John Law? And as for the
paper circulation representing government debts, is this
by chance an Italian specialty or invention ?
On the contrary, it must be stated with regard to this
last point, that while the Italian Government has within
a few years reimbursed the banks for the loans they had
made it, and at present has in circulation only its notes,
almost all governments are still to-day and probably
always will be debtors to the banks of issue for large
amounts, although some of them have their own notes
in circulation as well.
But the stormy vicissitudes of Italian banks are particularly interesting, not only because of the various
moral, political, and economic elements which caused them,
each of which has a special character and furnishes the
theme for a special study, but also, since being recent,
they gain that greater importance possessed by things
and events that are closer in time and space.
In fact, the banking crises experienced by other countries had come to be considered ancient history, and
were almost forgotten. Besides, the opinion had prevailed for some time past that the examples of the
ruinous effects of the bad regulation of banks of issue
would prevent, up to a certain point, the repetition of
past errors.
It cannot be denied, of course, that banking crises
have gradually become less frequent and less serious, in
spite of the increased work that the banks of issue are




8

The

Banks

of

Issue

in

Italy

obliged t o do t o satisfy t h e greater necessities of t r a d e
and t h e progressive growth of economic activity. On the
one h a n d t h e complicated mechanism of banks and credit
is a t present developed, especially in countries t h a t are
more advanced economical^, so as t o reduce t o its smallest proportions t h e use of metallic and paper money in
circulation, b y means of t h e extensive employment of
other means of exchange and t h e enormous increase of
clearing houses; while, on the other hand, t h e regulations
relating t o t h e issue of paper money have become more
rigid and severe, t h u s diminishing t h e probability of t h e
harmful expansion of t h e paper currency and t h e abuse of
credit.
W h a t is more, t h e ease and promptness with which t h e
m a r k e t of one country can enter into business relations
with markets of other countries and be assisted by them,
and t h e solidarity which has come about among the
great international financial powers, frequently operate
with efficiency and speed t o prevent crises or lessen their
gravity, intensity, and duration.
I t is evident, however, t h a t this help can be given only
when it is a question of crises of a transitory nature,
which do not destroy to t h e very foundations t h e economic and financial edifice of a country, since no real
aid can be obtained when t h e crisis extends t o all the
vital organs of a country, and especially when t h e banks
of issue, which represent the great motive power of economic life, are themselves injured and deranged, just as
was t h e case in Italy in 1893.
Indeed, t h e situation of these banks, as revealed
in t h a t year a t t h e time of the failure of the Banca




9

National

Monetary

Commission

Romana, showed clearly that they were in a state of
insolvency.
And I should like to say here that in accepting the very
flattering invitation sent me by the Honorable Senator
Aldrich to write for the United States Monetary Commission a report on the principal facts in the history of banks
and credit in Italy, I have determined to treat them with
all candor and to express with great frankness my critical
opinion concerning them; and this not only because of
due regard for historical accuracy and impartiality, but
also because of a sentiment of patriotic pride. Truly,
charitable omissions and clever concealments would not
only not be in the least justified here by the desire to
avoid injuring the credit of the country, now set on a solid
basis, but they would take away from the picture of
Italian banking crises the valuable effects of light and
shade; they would strike out from the economic history
of Italy pages full of instructive interest and at the same
time valuable in showing the work accomplished in Italy
by the Government, Parliament, and the banks of issue
themselves in making possible the really amazing reform
of the circulation of the country.
And, on the other hand, is it not perhaps creditable to
be able to gain salutary instruction from past errors ? Is
it not useful to show that the wisdom born of experience
furnishes a safeguard against the danger of committing in
future still graver errors ?
For it seems almost inevitable that all countries must
in these matters pay tribute to inexperience; that, especially at the beginning of their political career, they must
go through difficult ordeals in the midst of which they are




10

The

Banks

of

Issue

in

Italy

battered and scarred. All countries have, in fact, passed
through financial, economic, and monetary hurricanes;
all have passed through—many are still passing through—
the anxiety of financial deficits, for which they must
provide either by seeking in forms apparently less unpopular new sacrifices for the taxpayers or else by increasing
recklessly the amount of the public debt; all have been
smitten by the scourge of forced currency.
Italy should not, therefore, be reproached too harshly
for not being able to profit by the experience of others
and making the same mistakes that other countries had
already made. This is especially true because at the time
of its political unification Italy was destitute of everything, and had to attack and solve vast and difficult
problems which involved enormous expenditures. It had
to organize the state executive, unifying the different
systems in force in the various preexisting states; it had
to provide for organizing an army and navy; for building
railroads and completing public works made peculiarly
costly by the special characteristics of the country, traversed from end to end as it is by the Apennine and Alpine
ranges. Everything, then, had to be evolved from the
existing confusion in all that related to credit, circulation,
and financial-economic institutions in general.
Even though in taking the first steps of its national existence Italy was not able to advance rapidly and surely in
the high-road, and if in accomplishing the immense work
that presented itself the nation did not succeed in avoiding
grave errors, it certainly deserves all due allowance, because
the great good it has accomplished since then overcame the
evil in such a manner as to make it disappear completely.




ii

National

Monetary

Commission

And in what particularly concerns the vicissitudes of
banking, circulation, and credit in Italy it may indeed be
affirmed that they would have been less stormy if from
the time the country gained a political constitution it had
been able to count upon the valuable aid of a single
powerful bank of issue, a regulator of the circulation
and a strong defense for the State and the people in
moments of difficulty and crises.
Adolphus Wagner, passing in review the virtues
and defects of plurality and unity in the issue of paper
money, has acknowledged that one of the advantages of
unity consists in rendering greater service in times of
crises, which constitutes " without doubt the greatest and
most decisive advantage that a great central bank presents in comparison with a number of small banks,
especially in what concerns the right of issue.'' And he
has also acknowledged that a great central bank can give
strong support to the State and its finances in times of
political crises, a thing which the smaller banks can not
do, or at least can not do adequately, as it is proved by
the comparison between what happened in France in
1870-1871 and in the United States in 1861-1864; and
we may now add, in 1907 also.
To these and other most valid and truly conclusive arguments in favor of the unity of issue, the partisans of plurality are able to oppose and echo nothing but phrases as
full of rhetoric as they are empty of content. They protest fiercely in the name of liberty against the establishing
of odious monopolies, as if the unity of issue signified a
monopoly in the exercise of credit, and as if it were not
for the common interest to have a great institution as a




12

The

Banks

of

Issue

in

Italy

moderator of the currency, a watchful guardian against
foreign and domestic enemies, and a ready aid in case of
economic, financial, and monetary disturbances.
Nevertheless, in spite of the fact that experience has
shown, in a decisive way, the superiority of the unity of
issue, there is perhaps nothing more difficult to bring
about than this unity, as may be seen from the long struggle to prevent it in every country; in some of them it
would not have come about even then without the impetus
given by serious disasters of a political or economic character.
The difficulties arise not only from the prevalence of
liberal standards which are entirely out of place in this
matter, but still more from the obstinate resistance of the
network of interests which have established themselves
and grown up under the regime of plurality.
Even Italy, which at the beginning of its political career
certainly needed to create a sound organ of credit to satisfy
more fully the economic needs of the country, could not
bring itself to the point of settling the question in the way
public interest demanded.
Italy, although keeping three institutions, has also
been able since then, through unity of laws and the working together of the men concerned, to realize in substance
the benefits of the unity of issue. Yet it should in
all justice be stated that Italy would not have reached
this point without the aid of an exceedingly serious
and melancholy event, namely, the disastrous failure of
the Banca Romana.
It is easy to understand, therefore, how arduous the
struggle must be in the United States to arrive at the




13

National

Monetary

Commission

organization of a great central bank of issue, the necessity
of which has been made evident by former and recent
disasters.
However, the active investigation which is being pursued
by men of courage with lofty patriotic purpose gives
assurance that the fight will end in the triumph of the
good cause—an outcome which Europe joins in earnestly
wishing for America. The sincerity of this wish the
Americans can not question, since it is not entirely disinterested, as the difficulties of the American money market
have a reflex action on European markets, causing them
periodical disturbances.
ROME, January,
igio.




TITO CANOVAI.

H

THE BANKS OF ISSUE IN ITALY.
CHAPTER

I.

T H E ORIGIN OF T H E ITALIAN BANKS OF ISSUE.

No country, perhaps, presents such a diversity and
variety as Italy of banks originally organized or afterwards authorized to issue bank notes. This is due particularly to the historical subdivision of the country into
various States; these had their own institutions, which
were successively united to others, and each of these had
different characters, prerogatives, and privileges.
To outline briefly, therefore, the origins of the Italian
banks of issue is not simply to satisfy historical curiosity;
it is, in many cases, to give at the same time the reasons
for the vicissitudes through which these banks passed
and to add a valuable contribution to the study of the
regulation of the institutions to which is intrusted the
most delicate function of issuing paper money.
Just as the Bank of Italy, created in virtue of the law
of August 10, 1893, was made up of the fusion of three
preexisting banks—that is to say, the Banca Nazionale
nel Regno, the Banca Toscana, and the Banca Toscana
di Credito per le Industrie e il Commercio—so, with the
exception of the last, the two other banks, as well as the
banks of Naples and Sicily, still in existence, resulted
from the fusion of smaller institutions.
397810—11




2

15

National

Monetary

Commission

The Banca Nazionale nel Regnq t the biggest of all,
grew from the union, in the year 1849, of the Banca di
Sconti, Depositi e Conti Correnti, located at Genoa,
with the Bank of Turin, each created for a period* of
twenty years, with letters patent from the governor of
the Sardinian States, the first on March 16, 1844, the
second October 16, 1847. Each bank had a capital of
4,000,000 lire, divided into 4,000 shares at 1,000 lire each.
The two banks were authorized to carry on banking
operations, and also to issue notes payable at sight and
to bearer up to three times the amount of the metallic
money in the coffers.
By a legislative decree dated September 7, 1848, the
Government of the Sardinian States asked the two banks
for a loan of 20,000,000 lire, freeing them from the obligation of redeeming notes in coin.
By the agreements stipulated September 26 and October 3, 1849, approved with the reservation of being
converted into a law by royal decree of December 14,
1849, the fusion was arranged of the banks of Genoa
and Turin, and a bank was created which took the name
of the Banca Nazionale.
The capital was then 8,000,000 lire, divided into 8,000
shares of 1,000 lire each. The bank was to have the
grant for a period of thirty years and the privilege of
issuing notes up to the amount of three times the metallic
reserve.
The agreements and the royal decree were ratified by
the law of July 9, 1850, which provided by the issue of
state obligations to pay back whatever still remained of
the loan of 20,000,000 lire obtained from the two banks




16

The

Banks

of

Issue

in

Italy

of Genoa and Turin, and arranged that the Banca Nazionale
should within three months reduce its circulation to
22,000,000 lire, with the privilege of raising it afterwards to
a maximum of 32,000,000 lire, while it gradually withdrew,
with the reimbursement of the loan, the corresponding
amount from circulation.
The capital of the bank was raised from 8,000,000 lire to
32,000,000 lire by virtue of the law of June 11, 1852, which
stipulated that the bank should pay out to the State
15,000,000 lire in return for treasury bonds and certificates
of government rentes.
From 32,000,000 lire the capital was raised to 40,000,000
lire by the new charter of the bank, approved by legislative decree of October 1, 1859. In the charter it was
stipulated that the bank should hold the meetings of
stockholders at Genoa, Turin, and Milan alternately, in
which cities had been established branches, besides the
subbranches opened in other cities. To the stockholders'
meetings were admitted only those who had owned fifteen
or more shares for at least six months.
In the year i860 was authorized the fusion with the
Banca Nazionale of the Banca di Parma, which had a
capital of 500,000 lire, of which 300,000 lire were paid in,
and of the Banca di Bologna (or Banca delle Quattro
Legazioni), which had a capital of 200,000 Roman scudi,
or about 1,075,000 lire.
By the royal decree of June 2, 1865, was approved a
decision of the stockholders' meeting of the bank raising
the capital from 40,000,000 to 100,000,000 lire. The
royal decree of October 23, 1865, ratified an agreement
made between the Government and the Banca Nazionale




17

National

Monetary

Commission

for the assumption on the part of the bank of the treasury
service of the State; but the lively opposition raised in
Parliament caused the royal decree to remain without
effect.
Meanwhile, pressed by the urgent necessities imposed
by the political situation, the Government, by royal decree
of May i, 1866, asked the Banca Nazionale for a loan of
250,000,000 lire, freeing it from the obligation of redeeming
notes in specie by proclaiming the forced currency of the
bank notes. Then came the annexation to the Italian
State of the Venetian provinces and the Banca Nazionale
founded a branch at Venice, substituting this branch for
the Stabilimento Mercantile Veneto which the bank took
over, together with its capital of 2,100,000 Austrian
florins. There was a question at that time of the fusion
of the Banca Nazionale with the Banca Nazionale
Toscana, but the negotiations were not concluded. And
as the needs of the State were becoming urgent, the Government applied to the bank again, under the law of
August 11, 1870, for another 100,000,000 lire guaranteed
by bonds on ecclesiastical property, and subsequently
122,000,000 lire more, of which 50,000,000 were to be in
gold. For the sum of 450,000,000 lire, which was the
amount then remaining of the State debt to the bank,
the latter was freed from the obligation of keeping
the prescribed metallic reserve, and was authorized to
increase its circulation from 750,000,000 to 800,000,000
lire. The bank had as guaranty for its credit 333,000,000
lire in bonds on ecclesiastical property and received 6
• per cent interest on the sums loaned to the State.
But the needs of the latter were not yet satisfied, and
by the law of August 28 of the same year the Government




18

The

Banks

of

Issue

in

Italy

asked the bank for 40,000,000 lire more, in return for
treasury bonds, at the same rate of interest and under
the same condition of freeing the bank from the necessity
of metallic guaranty.
This operation was destined to be only a brief forerunner
of other much larger ones that were to follow. And in fact,
by the law of June 16, 1871, the bank was asked to make
another loan of 150,000,000 lire, guaranteed by government
5 per cent rentes ceded at the price of 70 per cent, with the
privilege of a corresponding increase of circulation without
metallic guaranty; and by the law of April 19, 1872, an
agreement between the Government and the bank was
ratified, according to which the latter engaged to lend the
State 300,000,000 lire more, with a corresponding increase
of its own circulation, and was authorized to raise its capital from 100,000,000 to 200,000,000 lire. In that same
year new negotiations were entered into for the fusion of
the Banca Nazionale Toscana, but they did not result in
a specific agreement. By degrees, as the destiny of Italy
took shape, and the scattered branches became grafted to
the sturdy trunk of the ancient provinces under the rule of
the dynasty of Savoy, the Banca Nazionale, following the
favorable fortunes of the Italian army, extended its field
of action over the whole country by means of branches
(sedi) and subbranches (succursali). Aiding the State
in its every need, with an impetuosity and eagerness
that seemed reckless, so that if the fate of Italy had
proved adverse it would have involved the bank in complete ruin, it fully justified its title of " Banca Nazionale,"
for such it was then, and such it always remained in its
every act.




19

National

Monetary

Commission

Nevertheless, there was no lack of criticism, as sharp as
it was unjustified, of the action of the Banca Nazionale;
but when the partisan wrath let loose by a morbid sentiment of grotesque bank hatred, and fed and excited
by rival interests was once dispelled, a just and calm
judgment prevailed. An impartial history has placed
Senator Bombrini, who was the founder of the Banca
Nazionale, in the number of those who cooperated vigorously and efficiently in the field of finance in the great
work of the resurrection of Italy.
*
Like the Banca Nazionale nel Regno, the Banca Nazionale Toscana was made up of the fusion of various small
banks existing in Tuscany; such as the Banca di Sconto
di Firenze, with a capital of 1,000,000 lire, which had succeeded the Cassa di Sconto created by the grand ducal
government with its own capital; the Banca di Sconto di
Livorno, with a capital of 2,000,000 lire; the banks of
Siena, Arezzo, Pisa, and Lucca. This fusion, which was
begun in 1857 with the two banks of Florence and Leghorn {Livorno) only, was completed in i860.
In 1870 the Banca Nazionale Toscana had a nominal
capital of 30,000,000 lire, of which 21,000,000 lire were
paid up. It was chartered as an institution of issue, a
privilege possessed also by the smaller banks that were
united to create it.
To complete the group of Italian banks of issue which
made up the Bank of Italy, there is still to be mentioned
the little Banca Toscana di Credito per il Commercio e le
industrie d'ltalia, which was created in i860, by decree of
the provisional government of Tuscany. The bank was




20

The

Banks

of

Issue

in

Italy

constituted with a capital of 40,000,000 lire, of which
5,000,000 lire were paid up. It did not come into existence
as an institution of issue, properly speaking, since it
was authorized to issue cash certificates (buoni di cassa)
only.
There now remain to be described the origins of the
Banca Romana and its situation until the year 1873, at
which time ends the first period, which may be called the
chaotic period, of the banks of issue in Italy. The origin
of the Banca Romana goes back to the year 1850, when
by papal decree was founded the Banca dello Stato
Pontifico in place of a Roman bank which had not been
successful. The charter, after the example of other
banks of issue founded in other Italian States, was given
for thirty years. The bank had the absolute monopoly
of banking operations and of the issue of bank notes in
the Papal State, but this bank likewise did not prosper;
so that the papal government, in 1856, after fixing the
daily redemption of bank notes in metallic money at
6,000 scudi, was obliged later to intervene to guarantee
the notes that it had in circulation.
From the start the Banca dello Stato Pontifico distinguished itself for the recklessness with which it committed abuses of all kinds. Instead of amortizing the bills
of exchange not paid on maturity, on which there could
either be no hope of recovering, or else the probability of
recovering on only a very limited part, the bank renewed
of its own accord in its entirety the discount ledger as
if it contained paper sure of recovery. Meanwhile, without paying the least attention to its condition, the bank
continued to distribute dividends for not less than 5 per cent




National

Monetary

Commission

of the paid-up capital, without increasing the reserve by
the deduction of profits prescribed by law, and it bought
on the market its own stock. At the end of 1870 the
bank owned shares amounting to about 2,000,000 lire,
whereby the capital might be considered reduced to about
3,000,000 lire, which, however, did not exist, because the
losses ascertained amounted to about 9,000,000 lire.
When in 1870 the Papal State was annexed to Italy,
the bank, in view of its known condition, ought to
have been liquidated or absorbed by the Banca Nazionale.
There were, in fact, negotiations with a view to this,
but they had no practical result.
The Italian Government, for reasons of a political
nature, did not wish to order the liquidation of the only
banking institution existing in the former Papal State,
but wished instead to reorganize it, with especially favorable provisions, that under skillful, cautious, and correct
management would have infused new life and vigor into
the institution, which took the name of the Banca
Romana.
By royal edict of December 2, 1870, it was decreed that
the bank, giving up the complete privilege of issue in the
former Papal State, should have, by way of indemnity,
2,000,000 lire from other institutions wishing to open
branches and agencies in Rome and the Roman province,
or those which should be created and founded there.
The capital of the Banca Romana was fixed at the
amount of 10,000,000 lire, represented by 10,000 shares
at 1,000 lire each. The bank was authorized to perform
all banking operations and to issue bank notes, and undertook to furnish the Government the sum of 4,000,000 lire




22

The

Banks

of

Issue

in

Italy

at 3 per cent interest, secured by treasury bonds and
certificates of government rentes.
*
Having finished the outline of t h e origins and conditions of t h e Italian banks of issue organized under the
form of joint-stock companies, let us now examine t h e
origins of the two banks of Naples and Sicily, which still
keep t h e privilege of issue and present a character entirely
peculiar to Italy * since there is no example in other countries of similar institutions.
Although the n a t u r e and character of these two banks
were and still are of a very special kind, yet their process
of formation was not unlike t h a t of t h e other principal
banks of issue, since they too grew and developed b y
means of fusions and by absorbing other institutions
originally unimportant.
T h e Bank of Naples is t h e oldest b a n k of issue in
Italy, although it should be stated t h a t t h e privilege of
issuing bank notes, properly so-called, was conferred on it
by t h e law of April 30, 1874. Having been created in
1796 b y the fusion of seven pawn banks (Banchi Pii, o
Monti di Pegno) founded by private individuals toward
t h e end of t h e sixteenth century to fight usury, which was
r a m p a n t at Naples, the bank had and continued to have
for a long time the predominating character of an instit u t i o n of charity and beneficence.
I n t h e articles of
foundation of t h e seven pawn banks it was settled t h a t
the greater p a r t of the profits should be used in works of
charity in Naples—in making loans to t h e very needy,
without interest, in giving dowries t o poor girls, in freeing
people imprisoned for debt, in ransoming Christians who




23

National

Monetary

Commission

had been captured by infidels, and, in general, in aiding
the city of Naples in its needs.
By royal edict of Ferdinand IV dated September 29,
1794, the union was decreed of the seven pawn banks.
The bank, united and enlarged, suddenly came into favor
with the State and Court which drew upon it, in order
to provide for their own needs, and also for those of their
favorites, with the money which had been deposited with it
because of the great confidence it enjoyeti. And already,
by 1794, the bank had been authorized to put in circulation inconvertible certificates of credit for 35,000,000
ducats in place of like sums taken by the State and
Court.
The political disturbances that agitated .the Kingdom
of Naples toward the end of the eighteenth century did
the rest. The bank, in spite of the withdrawals it had
suffered, enjoyed nevertheless an apparently prosperous
existence, and kept in every way its character until
1816, when by decree of December 2 the revocation was
pronounced of all preceding acts concerning the bank,
and it was arranged that after January 1, 1817, it should
assume the name of Bank of the Two Sicilies, and should
be divided into two distinct sections—one, called Cassa
di Corte, for the treasury service of the State, public
works, and municipalities; the other, called Cassa dei
Privati, for the banking service of private individuals.
From that time forth, of course, except for sums of small
importance, the profits of the bank ceased to be used
for works of charity and beneficence.
To give an idea of the situation to which the Bank of
Naples was gradually reduced, it will suffice to say that




24

The

Banks

of

Issue

in

Italy

in the year 1863 Minister Manna presented to King Victor Emmanuel II a resolution reforming and reorganizing
the bank, which, as he declared in his report, could no
longer continue under the condition to which it had
been reduced by the preceding Government. From being founded in the beginning for the benefit of private
individuals and for certain works of charity, it had
become, little by little, an organization closely connected
with and dependent upon the state finances, which the
treasury drew upon* largely.
The Bank of Naples created and developed certain
instruments of circulation somewhat different from checks
and bank notes, properly so called; that is to say, certificates of credit, cash orders, and orders for small
amounts, which were, substantially, certificates of sums
deposited in its coffers, and were all of them used as a
means of payment, and also for the transmission of
money from one place to another.
Forced currency having been decreed in 1866, the privilege was granted of giving and receiving the certificates
of credit and cash orders of the bank as current money,
at their nominal value, in all the southern continental
and island provinces. By the law of September 3, 1868,
the bank was authorized to issue notes of 1 lira, and subsequently it was also authorized to issue cash orders for
0.50, 1, 2, 5, 10, 20, 50, 100, 250, 500, and 1,000 lire.
The Bank of Sicily came from the union of the two
Casse di Corte (Court Banks) founded by royal Bourbon
decree of April 17, 1843, one situated at Palermo, the other
at Messina, and controlled by the Bank of Naples. The
two Court Banks were united in a single institution




25

National

Monetary

Commission

which was independent of the Bank of Naples and took
the name of "Banco Regio dei reali domini aldi Ik del
Faro" (Royal Bank of the King's Domain in Sicily).
Like the Bank of Naples, the Banco Regio di Sicilia
received on deposit sums from the treasury and from the
public administration and also from institutions of charity
and beneficence, which were obliged to deposit with itThe Banco Regio issued cash orders (polizze) transmissible
by transfers, also used by private individuals. It issued
likewise certificates of credit (fedi di qredito) representing
sums deposited with it, and these were declared not subject
to seizure and sequestration. It retained the character
of deposit bank until 1867.
Just as the Bourbon Government had gained access to
the cash boxes of the Bank of Naples, so it reached those
of the Bank of Sicily, from which it borrowed sums of
money, being imitated in this practice by the Dictatorial
Government also. A royal decree of May 1, 1870, provided for paying the bank the sum of 2,876,301.78 lire
for which it was creditor.
This bank was authorized by ministerial decree of
January 4, 1872, to issue certificates of credit up to three
times the amount of its metallic reserve.
The conditions of the institutions of issue and the
paper currency in Italy were therefore almost always
abnormal and unorganized, since there was a mixture of
institutions, different in nature and privilege, and a
hybrid circulation, partly private and partly belonging
to the State, which could not truly serve the economic
and monetary conditions of the country. In addition to




26

The

Banks

of

Issue

in

Italy

about 800,000,000 lire in notes issued for the State, there
were, in 1873, more than 700,000,000 lire in circulation
issued by the banks of issue on their own account. These
two figures fully justified the high rate of exchange, which
was hovering in the neighborhood of n o , with a tendency
to rise. The occasion for the rise of agio came with the
crisis which broke out in Austria that same year, and was
reechoed in the other countries of Europe, including Italy,
and in the United States. Italy had to suffer from it
particularly because of the conditions of the domestic
currency, which were such as to arouse serious anxiety.




27

CHAPTER

II.

THE ASSOCIATION OF THE BANKS OF ISSUE.

In the absence of precise legislation there had grown
up in Italy meanwhile all sorts of abuses which had taken
the form of a veritable glut of bank notes issued by credit
institutions, people's banks, and even by merchants and
private individuals, so that the country was flooded with
paper money of all kinds and qualities, down to denominations of 30 and even 20 centesimi. The crisis in Italy
was serious, therefore, both for internal reasons and conditions, and for the reflex action of foreign events. In the
presence of a situation that threatened daily to become
more grave, the Government thought it necessary to intervene by a law which reorganized the paper currency and
regulated the issue of bank notes, regulating at the same
time the circulation of notes which had been issued on
account of the State.
The parliamentary discussion of the question of the
currency was very violent. The partisans of both sides
of the question were drawn up in battle array—on the one
side those who maintained that the State must be freed
•from its subjection to the Banca Nazionale by creating its
own currency; on the other side those who argued the
danger of investing the State with the power to create
bank notes, a power which it would easily be led to abuse,
while they acknowledged that the credit of the Banca
Nazionale would cover the notes issued by it on account
of the State. Confronted by the conflict of these opposing tendencies, the Government decided to resort to a




28

The

Banks

of

Issue

in

Italy

middle expedient, which could be approved both by the
partisans of state circulation and those who preferred a
bank circulation.
The middle term was found in the organizing of an
association {consorzio) of Banks of Issue, which included
the Banca Nazionale nel Regno with the five other institutions—the Banca Nazionale Toscana, the Banca Toscana di Credito, the Banca Romana, and the two banks
of Naples and Sicily. The association was to furnish the
Government i ,000,000,000 lire in notes for denominations
of 0.50, 1, 2, 5, 10, 20, 100, 250, and 1,000 lire. Of this,
890,000,000 lire were to be provided within a year of the
publication of the law and the remainder subsequently
in accordance with resolutions to be settled by the law of
the budget or by special law. The law of April 30, 1874,
which established the association, stipulated that whereas
the notes to be provided the Government by the said
association should have forced currency, those that the
banks of issue had the privilege of issuing on their own
account should have legal currency, and be redeemed on
demand in the notes issued by the association for the
account of the Government, or in metallic money; and
after two years, the forced currency having ceased, they
were to have fiduciary currency.
Before proceeding to examine this fundamental law of
Italian circulation it will be well to pause to consider the
error sanctioned by it, an error which consists in maintaining that in one single country there can be a circulation with forced currency and one with legal currency,
with the obligation of redeeming bills in metallic money.
This is equal to imagining that in one single country there




29

National

Monetary

Commission

can exist at the same time two kinds of currency, one
sound and the other unsound. Now, in the conditions of
Italy at that time, conditions clearly shown by the quantity of notes that represented a loan to the Government
for sums greater than all the aggregate of notes that represented banking affairs instead, and still better shown by
the inevitable depreciation of paper money, which affected
all of it, the presumption could not fail to seem absurd,
and even unlawful, that the banks of issue should redeem
at sight their own notes in metallic money. And, on the
other hand, the right of changing the notes of the banks
which had legal currency for others having forced currency, from which the law had taken away the obligation
of a metallic reserve at the ratio of one-third, could not
evidently be of the least importance from a monetary
point of view, since anyone who needed gold to pay foreign debts could not get it either for the notes of the
banks themselves or for the notes of the association circulating to the debit of the State and with forced currency.
Now, it may possibly happen, and it has happened and
is still happening in fact in various countries, including
Italy, that a quantity of State notes is in circulation alongside of and in competition with notes of the banks, without
their disturbing each other, and without the total circulation being subjected to any depreciation; but that can
be the case only when the circulation of the banks is sound
and rests on solid metallic reserves, fostering real commercial affairs surely payable at maturity; and when the
circulation of the State is kept within limits that do not
exceed the so-called " fondo-morto" of circulation, that is
to say, that mass of bank notes, for the most part of small




30

The

Banks

of

Issue

in

Italy

denominations, which remains stagnant because it corresponds to the necessities of small transactions. For
this very reason the State circulation is composed principally of small notes which cause less disturbance in the
matters of redemption. But when, as was certainly the
case in Italy in the period under examination, not only
the banking circulation was not regulated but that of the
State amounted to an extravagant sum, it was quite impossible to talk of circulation with forced currency and circulation with legal currency. The distinction was inscribed
in the banking law because the lawgiver, by authoritative
act, wished to assert the right of the State not to change
the notes, and the obligation of the banks to change
them; but it did not correspond to the facts, which were
that there existed in Italy one single mass of notes,
amounting to a billion and a half, composed of two kinds
of notes, one to the debit of the banks, the other to the
debit of the State, but all without exception depreciated
and really at forced currency.
And indeed, with exchange at the above-mentioned rate
of 110 per cent, and later in the same year of 1873 at 115.50
per cent, if the banks had redeemed the notes in specie,
their metallic reserves would have been completely exhausted in a few days and would have crossed the frontiers.
But the sophism sanctioned by the law of 1874 was
neither then nor afterwards an Italian novelty, since there
are other examples, old and new, in various countries,
which show that legislators have believed and still believe
that economic principles lose all active efficacy in the presence of the power of an article of the law, especially when
it is a question of enactments which are supposed to con39781 ° ~ 11




3

3i

National

Monetary

Commission

duce to the interests of the State. It is therefore a common belief that State bank notes, or those issued by the
banks for the State, not only do no harm to the monetary
conditions, and consequently the economic conditions of a
country, but that they afford a proper and economical
method of satisfying the needs of the exchequer, sometimes preferable to loans, which are more costly.
The error is so deep rooted that it was not even remarked upon in Spain when the State paid the bank 3
per cent interest on notes furnished by it. There is no
doubt that if the money which the Spanish Government
spent for a number of years in paying interest to the
bank on sums furnished by it up to a total of about a
billion, had been used in paying interest on certificates of
amortizable government stock, the question of Spanish
circulation would have progressed more rapidly and more
surely toward a solution corresponding to the real needs
of the country, greatly to the advantage of both State
and people.
But in spite of the many defects which it contained—
first and gravest of all, that of creating an organic system
of plurality of banks of issue, which, as we shall see,
was to prove harmful to Italy—we must nevertheless
acknowledge that the law of April 30, 1874 w a s a t that
time of undeniable service, in view of the very serious
condition of the country, to which it brought some relief
It laid the foundations of the Italian banking system
which, being modified successively according to the
needs growing out of changing conditions, may be considered in substance the one which still survives to-day,
in so far as it defined the rules for the limitation




vP

The

Banks

of

Issue

in

Italy

of the circulation, fixing it at three times the paid-up
capital of the banks having the form of joint stock
companies or of the free capital possessed by the two
banks of Naples and Sicily, on condition that a similar
ratio should be maintained between the notes in circulation and the metallic reserve; it forbade all issue
of notes by other institutions, and stipulated that all
those which had notes in circulation should withdraw
them by December 31, 1874; it established the tax on the
circulation of bank notes at the rate of 1 per cent, deducting that covered by metallic reserve; it removed the
state guaranty for the circulation of the notes of the
Banca Romana, which had been given by the Papal Government, and obliged the bank to redeem its own notes;
it arranged for the extraordinary increase of circulation
in moments of urgent need, settling that this should not
be resorted to until after the discount rate had been
increased, and could not exceed 40 per cent of the paidup capital and free capital of the banks of issue, and
was not to continue for a period of more than three
months, while the profits of the greater circulation were
to accrue entirely to the State.
A provision of the law that was exceedingly severe, and
in practice never observed, stipulated that any banks of
issue keeping in circulation bills or other equivalent certificates payable to bearer, beyond the sum authorized by
the law, or assuming other obligations payable at sight
or on simple demand, without maintaining the prescribed
ratio to the metallic reserve, should be obliged to pay the
State a fine for a sum equal to the excess of circulation
or liabilities or the deficiency of the metallic reserve.




33

National

Monetary

Commission

Another exceedingly severe provision of the law, hence
never enforced, took away legal currency from the notes
of the banks which had not satisfied the requirement
to redeem their notes in the notes of the association or
in metallic money.
An article of the same law provided further for the
mutual redemption of notes among the banks of issue in
conformity with rules to be established by royal decree.
It will be seen in due course how this requirement of
redemption gave rise to bitter and violent discussions, and
how the Government ended by abolishing it.
The same law established the amount of the capital
and free capital of the banks of issue which should serve
as a basis, together with the respective metallic reserve,
for the issue of bank notes; it provided for establishing in detail the government inspection of banks by a
regulation to be ratified by royal decree; and so great
was the faith that the adjustment made by this law
would completely cure the ills of the country's currency,
that it ordered the Government to present within six
months of its promulgation a report on the paper circulation, with the proper provisions for bringing about
the abolition of forced currency.
Such confidence could not fail to seem excessive if
we consider that, as we have already seen, the State
alone had a circulation of 860,000,000 lire, which it was
proposing to raise to 1,000,000,000 lire. This circulation,
of which the part already issued and still to be issued by
the Banca Nazionale nel Regno amounted to 890,000,000
lire, was, according to the law of 1874, to be replaced by




34

The

Banks

of

Issue

in

Italy

bank notes issued by the six banks organized into a
association.
The notes that the association was to furnish the State,
up to a maximum total of 1,000,000,000 lire, of which
890,000,000 lire were to be furnished within the first year,
were to be issued at the charge of the banks themselves
in proportion to their respective paid up capital or free
capital; but in order to give immediate effect to the law
it was stipulated that the notes of the Banca Nazionale
of the denominations of 1, 2, 5, 10, 20, 250, and 1,000
lire should be declared provisionally association notes,
—biglietti consorziali provisori—while those of denominations of 25, 40, 50, 100, and 500 were to remain in circulation on account of the bank itself. With the notes
of the association the State reimbursed the Banca Nazionale for its credit, which had amounted to 860,000,000,
lire, to which was added an additional 30,000,000 lire
provided for by the laws of December 21 and 24, 1873.
Thus ended this period of relationship between the
State and the Banca Nazionale, which, as we have seen
above, had excited so many polemics, and the principle
of the plurality of the banks of issue was reenforced,
and extended also to the banks of Naples and Sicily
in a more explicit and organic way. Until then these
had been considered institutions of a special kind, authorized to issue fiduciary certificates different from bank
notes, but once granting the continuance of the plurality
of banks, they could no longer be excluded from the
privilege of issue.
The effects of the new law on the currency could not,
however, be realized in this same year of 1874, because




35

National

Monetary

Commission

in Italy and abroad the crisis which had broken out the
year before still lasted and its final liquidation went on
until 1876.
In the year 1875, however, the first good effects of the
banking law began to be felt, effects due, moreover, to
external causes also which must be taken into account
and deserve some slight mention, inasmuch as they show,
in no doubtful way, that the conditions of the circulation
and credit and in general of the public economy
can not always be regarded as independent and
separate from those of the finances of the State.
Examples may be given of their absolute independence of
each other, in that there are cases of countries financially
rich and economically poor, since, while the people work,
produce, earn, and save, governments with an antieconomical and spendthrift policy scatter the public
money and ruin the State finances; such examples can not
be shown, however, except from special causes of a transitory nature. Consequently, there is no example of a
country permanently in a state of economic inferiority
and financial prosperity, because the latter can not become
solid if it is not based on economic prosperity; likewise
there is no example of a country with State finances permanently disorganized and in normal economic and monetary conditions, because the State, in order to provide for
the financial embarrassments, will have recourse to issues
of obligations or its own notes, or bank notes with forced
currency, and will oppress the public economy with
excessive taxes which will dry up the sources of national
activity.




36

The

Banks

of

Issue

in

Italy

In general, a very close connection may be seen between
the conditions of the State finance and those of the public
economy, a connection which makes each feel, from time
to time, the effects of events either fortunate or unfortunate, to which both may be subject.
Let us add that sometimes the economic conditions of
a country may be harmed by external causes also, especially if it is a question of a debtor country, which, in
order to provide for the financial needs of the State or
those of its own economy, has asked and obtained the
help of foreign capital; since it is enough in such a case
for the foreign market to be disturbed, to cause the State
securities or banking and industrial securities to be sent
back with a violent movement to the debtor country,
which must pay for them in ready money. Instinctively, creditor countries, in moments of financial crisis or
monetary stringency, dispose of the foreign securities
that they can normally sell at prices higher than those
at which they have bought them, and which they will
then be able to get back at prices lower than the ones
at which they sell them, because their privileged position
puts them in the way of choosing the right time to buy
and the right time to sell. On the broad green cloth of
the international market creditor countries are the players who play most frequently with marked cards.
It comes about for this reason that while creditor
countries escape with the rapid sale of foreign securities
functioning as ballast, which permits the market to remain up, debtor countries, which are necessarily destitute even in normal times of the available cash needed




37

National

Monetary

Commission

for the regular progressive development of their own
activity, find themselves, instead, exposed to suffer more
rudely the effects of the disturbances of the financial
markets, even when the countries themselves .have nothing to do with the causes which have provoked them.
In such cases it is of no avail for a country to have a
circulation that is sound because it represents true and
valid commercial transactions, surely payable at maturity, and adjusted to the internal needs of the country—
since the abrupt return from abroad of a considerable
quantity of national securities, suddenly altering the ratio
of debit and credit of the country, disturbs its monetary
tranquillity and makes exchange rise rapidly.
But even without the mediation of violent causes, such
as the breaking out of a crisis, the monetary economy of a
country may likewise be disturbed by the bad conditions
of the State finance, since the decline and return of the
securities of a country may be due also to discovering a
big deficit for which it is not easy to provide.
Italy, which was for many years a debtor country for
enormous sums, to the extent of having abroad as much as
some 6,000,000,000 lire in State and private securities, was
obliged many times to experience the effects of this condition of inferiority of debtor countries, which find themselves without weapons in the monetary contests fought
in the international market. And while they remain
almost isolated and excluded from the normal movement
of the international money currents, because foreign
capital can not be attracted to them without the inducement of higher remuneration, owing to the frequent
fluctuations of exchange, which make capitalists insecure




38

The

Banks

of

Issue

in

Italy

and timid, debtor countries are in addition exposed to
suffer more harshly the consequences and reflex action
of disturbances which come into the international market
for any reason, whether political, economical, monetary, or
speculative. It may be said, therefore, that debtor
countries with impaired finances and circulation are,
in their relations with creditor countries, isolated in good
and associated in evil.
These things are mentioned here not as a theoretic
summing up of the reciprocal relations that inevitably
intervene between the conditions of the State finance and
those of the economy of a country, but as an explanation
of the monetary disasters of Italy, which were not all exclusively dependent upon the conditions of the paper currency
and the situation of the banks of issue.
So, for example, the increase of exchange mentioned
above, from n o , the highest point reached in 1872, to
115.55, the highest point reached in 1873, w a s n ° t due to
any increase in the evils of the Italian currency, but, as
we have already said, to the crisis which broke out in
Austria, and reacted on other countries on both sides of
the Atlantic; and it was also due to the conditions of the
financial balance sheet of the State, in which the deficit,
which had fallen from 214,000,000 lire in 1870 to 47,000,000
lire in 1871, had risen again to 83,000,000 lire in 1872 and to
89,000,000 lire in 1873. * n direct ratio with the advance
in exchange stood the decline of Italian rentes on the
Paris market, which went down, in 1873, from a maximum
quotation of 68.40 to a minimum of 58.10, and in 1874
from a maximum of 68 to a minimum of 58.9a




39

National

Monetary

Commission

But the beneficial effect of the new law on the paper
currency which was visible, as we have said, in 1875, was
due to the better condition of the international market
which was still engaged in the liquidation of the crisis,
already for the most part completed, and also to the
improved conditions of Italian finance. Italian rentes
fluctuated in 1875 between the minimum quotation of
66.10 and the maximum of 74; exchange varied between
the minimum rate of 105 and the maximum of 109.30,
while for the first time there appeared a surplus in the
budget for the sum of 14,000,000 lire.
Conditions remained stationary, until, in 1877, a new
decline in Italian rentes in Paris (which fell from 73.20
to 62.15) provoked a new rise in exchange to 113.
The following period from the point of view of the
functioning of the system of the paper currency, does
not present details worthy of special mention. Although
signs were already discernible of a rivalry between the
various banks of issue which was later to have disastrous
effects, yet they were acting in relative, or at least apparent, harmony, and their action did not exceed the normal
needs of the country, which was gradually developing its
economic activities. But an important political event,
the fall from power of the party of the Right which had
remained in for a long time, and the advent to the Government of the party of the Left, was to have, even in the
matter of the currency, noteworthy results.
The party of the Left had come into power with youthful
impetuosity, bringing with it a large baggage of financial
and economic reforms; it had come filled with the impatience of the fighting spirit, as if it believed it had a




40

The

Banks

of

Issue

in

Italy

great mission to accomplish. The principal ideas of the
economic-financial reform programme were the abolition
of the grist tax and the abolition of forced currency.
In order to win an enthusiastic reception for these two
important parts of the programme of the Left, sensational
phrases were found calculated to excite and captivate the
minds of the crowd; phrases such as political parties
never lack. And it was said the "grist tax is a starvation tax," and "forced currency is a dishonor."
As for the first, the seal put upon it might have seemed
suitable to define it exactly if, almost immediately upon
the abolition of the grist tax which brought into the
State coffers about 45,000,000 lire a year, there had not
been imposed a duty on the importation of grain, as
high as 7.50 lire a hundred kilograms, which put from
150,000,000 to 160,000,000 lire and even more a year in
the pockets of the producers of grain, without, of course,
benefiting in the least the people in general. On the
contrary, it may be said that the abolition of the grist
tax was the signal for an increase in the price of bread.
But it is not easy to make out why forced currency
should be considered a dishonor. Forced currency is the
condition of monetary inferiority of a country, which may
be, as was precisely the case with Italy, the result of
the immense expenses incurred in the long-drawn-out
struggle for the political unification of the Kingdom, and
for the urgent and serious needs growing out of its unification. Forced currency may also be the result of
financial and economic errors; in any case it indicates
a state of affairs that is prejudicial, but not dishonorable
for a country, unless it has grown from immoral and




41

National

Monetary

Commission

criminal causes; and since it is a prejudicial state, it is
fitting to consider the ways and means best suited to
bring it to an end.
However that may be, inasmuch as the Left had come
into power, it was its desire and duty to solve these two
questions; and while Signor Seismith Doda, minister of
finance, was engaged upon the question of the grist tax,
and got the bill passed by the Chamber in the midst of
the raging of the most violent polemics and the determined opposition of the Senate, on the other hand Signor
Agostino Magliani, minister of finance, was later to take
up the question of forced currency.




42 .

CHAPTER

III.

THE ABOLITION OF FORCED CURRENCY AND ITS EFFECTS.

It seemed to the Left on coming into power that in
abolishing the forced currency of bank notes it would win
a fight which would raise it to a great height in comparison
with the party of the Right, which, although it had
expressed at various times the intention of providing for
the abolition of forced currency—an intention that Marco
Minghetti had promised by an article of the law of April
30, 1874, to carry out by presenting a bill to that effect
within six months from the promulgation of the law
itself—had, none the less, failed to succeed in doing it.
In spite of all the bitter and not entirely unjustified
criticisms heaped upon the long financial work of Agostino
Magliani, an impartial historian can not fail to recognize
that he was a man of profound learning, of marvelous
ingenuity, of subtle mastery of technique, with a broad
knowledge of the problems that bear upon State finance
and public economy; being rich in resources and expedients, he was able at times to extricate himself with great
ease and simplicity from involved and difficult situations;
and he was, above all, of exemplary uprightness; the last
quality the other ministers of Italian finance possessed in
common with him.
Agostino Magliani, who was minister of finance for
ten years and took part in very important financial
operations, died poor.
It is not probable that Agostino Magliani failed to consider, in the intimacy of his conscience, certain of the




43

National

Monetary

Commission

objections and reservations which had been made, in
lively forms too, by his adversaries. But he was now in
the service of the party which desired the great victory of
the abolition of forced currency; and since he was not as
energetic and resolute as he was talented, he was unable
to resist and allowed himself to be drawn along by the
current; which signifies that in this matter of forced
currency, as in other things for which he was reproached,
even by his friends, in virtue of that right to ingratitude
of which those persons especially avail themselves who
wish to make others solely responsible for errors that have
been planned and committed together, Agostino Magliani
must be considered in great part as the executor of a collective will that was imposed upon him. If he had
obeyed the dictates of his knowledge and conscience and
given up office, as he had often expressed the intention
of doing, in order not to lend himself to carrying out that
financial policy which distinguished the first period of
the advent to power of the Left, a financial policy which
was called optimistic and thoughtless, he would, by abandoning his post have saved his reputation but would not
have helped finance, whose optimism and thoughtlessness
would not have ceased on that account, but would,
instead, have increased. For Agostino Magliani raised
more than once a voice of severe admonition and refused
to carry out the other parts of the financial programme
which the party, to use the time-honored phrase, had inscribed on the folds of its banner.
However, the prevailing idea that forced currency must
be abolished by a summary proceeding, by a law which
declared its downfall, showed clearly how superficially this




44

The

Banks

of

Issue

in

Italy

grave problem had been examined. Nevertheless, the
plan that Magliani evolved bears witness to his great talent
and puts in evidence the prevailing benevolence of his
mind, naturally inclined to see and foresee the good; for
Agostino Magliani was above all a great optimist.
Considering that the forced currency of bank notes had
been decreed and imposed for State reasons, in order to
keep coactively in circulation, and make accepted the
notes of the State, Magliani proposed to redeem these
notes with the proceeds of a loan to be made in gold for a
sum of only 644,000,000 lire, 44,000,000 of which were to
serve to reimburse the loan in gold made by the Banca
Nazionale to the Government to buy over the tobacco
monopoly.
Since 940,000,000 lire of notes were then circulating
under forced currency and to the debit of the State, there
would remain, not redeemed in gold, 340,000,000 lire, which
Magliani judged could be left in circulation without disturbing the mass of notes, especially because they would
be divided into notes of small denominations of 5 and 10
lire, and would be declared convertible into metallic money
on demand, then cancelled annually by means of the
surplus of the budget, on which he thought he could surely
count; while, in the meantime, a corresponding sum in
certificates of government rentes deposited in the Cassa
dei Depositi e Prestiti was set aside to guarantee the State
notes.
These promises and guaranties caused the proposal for
the creation of true and proper State notes, to be favorably received, though not without difficulty and opposition,
the provision being considered of a transitory character,




45

National

Monetary

Commission

which was to make less arduous the greatly desired abolition of the forced currency of notes.
Naturally, the loan involved a greater annual expense
of about 36,500,000, because, in order to obtain the sum
of 644,000,000 lire, it was necessary to sell, at the price of
88, 5%, Italian rentes for a nominal value of 729,745,000
lire, bearing 36,487,250 lire interest. Minister Magliani
had to show, therefore, that the greater expense would be
partially offset by the fact that the abolition of forced
currency would diminish the burdens of the Italian
treasury in the payments it had to make abroad. He
was obliged, moreover,* to propose other resolutions, the
most important of which consisted in a modification of
the system of pensions to the employees of the State, by
means of creating a department independent of the treasury; a change by which Magliani counted on saving about
19,000,000 lire a year. This design, however, was not carried into effect.
But without going into particulars of minor importance,
it may be stated that the foundation on which rested the
whole structure of the bill for the abolition of forced currency was represented by the optimism of Magliani, by
the strong and sure faith that he had in the progressive
increase of the returns, and in the firm establishment and
further increase of the surplus of the budget. The opinion
was clearly fixed in his mind that the very abolition of
forced currency, by stimulating still further the activity
of the country, would help the national economy, and
through direct and indirect ways compensate the budget
* for the burden which it was apparently about to assume
by the issue of the new loan. And as it always happens




46

The

Banks

of

Issue

in

Italy

when profitable and agreeable things are announced, he
succeeded in communicating his conviction and his optimism to the great majority of the members of Parliament,
who passed the bill with enthusiasm.
To justify the roseate forecasts of Magliani it may be
well to say that the budget had closed for the fiscal year
1879 with a surplus of 42,000,000 lire in the ordinary part,
a surplus which had gone down in 1880 to 27,000,000, and
that all the signs of the economic and industrial movement of the country pointed to a betterment which justified the faith in further progress. The situation of
the banks of issue at the end of 1879 w a s a s follows:
[Amounts expressed in millions of lire.]
Notes in Demand DeposDiscirculiabiliits.
counts.
lation.
ties.

December 31, 1879.

Nazionale nel Regno
Nazionale Toscana. .
Toscana di Credito.
Romana
di Napoli
di Sicilia

200, o
30.0
10. o
15.0
43- 1
10. o

44i. 1

Total

Banca
Banca
Banca
Banca
Banco
Banco

Capital.

308.1

732.4

68

59-2

14. o
43 -5
144-8
29. 7

73-9
23-4
381.3

Metallic reserve.
For bank notes.

For demand liabilities.

Per
cent,

Per
cent.

Amount.

Banca
Banca
Banca
Banca
Banco
Banco

Nazionale nel Regno
Nazionale Toscana. .
Toscana di Credito . .
Romana
di Napoli
di Sicilia

154.8
19.7
6.4
16.3
75-2
10. 4

35

Total

282.

38

40. 2

39781 0 —II




4

Grand total.
Per cent
of bank
notes.
161.8

36

.06

33

19.8

33

45

•03

33

6.4

46

12

•7

33

17.0

39

52

24. 6

33

99-8

68

35

47

33

33

7.8

33

18. 2

61

7.0

323.0

National

Monetary

Commission

The loan of 644,000,000 lire was taken up by an AngloFrench-Italian Syndicate, under the direction of the
Banca Nazionale nel Regno, which, in agreement with
Signor Magliani, was to overcome rapidly grave difficulties
subsequent upon the Tunis question, which made the
French market less inclined to share openly in a great
Italian financial operation. The loan was fully successful,
principally because of the enthusiasm of the English
market, to which it was presented under the auspices of
the two great banking houses, Hambro & Co. and Baring
Brothers.
Of the proceeds of the loan, 44,000,000 lire in gold were
used to pay back the loan made by the Banca Nazionale
for the government tobacco monopoly; 116,000,000 lire in
foreign payments on account of the treasury. The remaining 484,000,000 lire, of which 398,000,000 lire was in
gold and 86,000,000 in silver were deposited in the coffers of
the treasury, which substituted for the sum of 116,000,000
lire paid abroad on its account an equal amount of gold
received in payment of customs duties. On May 10, 1883,
the Italian treasury possessed 728,000,000 lire in gold.
The law of April 7, 1881, for the abolition of forced currency, dissolved from June 30 of the same year the association of the banks of issue, and declared that from
that date the notes issued by it on account of the State
should be constituted a direct debit to the latter; and it
arranged for the calling in of State rentes which, having
been given first as guaranty for the loans made by the
Banca Nazionale, had been transferred later to guarantee
the notes of the association, substituted for those of the
bank itself.




48

The

Banks

of

Issue

in

Italy

The association notes, which had passed over entirely
to the debit of the State, were declared legal tender in the
whole Kingdom, but reimbursable on demand in coin.
The notes of the Banca Nazionale, declared temporarily
association notes, were to be changed, within five years,
into definitive association notes at legal currency; after
this time they should be lapsed in favor of the State.
Thus also the notes of 5 and 10 lire, issued by the association, should be changed into State notes of the same
denominations. The State was to deposit at the Cassa
dei Depositi e Prestiti certificates of rentes for the sum,
at nominal value, of 340,000,000 lire, as a guaranty for
a like sum of State notes. As we have already seen, the
law stipulated that the total of the State notes should
be diminished by the surplus of the budget available for
the sinking fund of treasury debts, against the withdrawal
and canceling of a corresponding amount of the rentes
deposited as guaranty.
The law disposed that from the date on which was
begun the redemption of the association notes in metallic
money the customs duties on imports should be paid in
the said notes or in metallic money, excluding fractional money beyond 100 lire for every payment. The
legal currency of the notes of the banks of issue was continued for the whole of 1883, and, at the same time,
it was arranged that the Government should have the
option to receive these notes in the public coffers even
after they had ceased to have legal currency. The metallic reserve for the guaranty of the notes of the banks of
issue was to be composed exclusively of metallic coin
having legal currency in the Kingdom, and the Govern-




49

National

Monetary

Commission

ment undertook the task of keeping watch to prevent the
gold reserves of the banks from being disposed of or converted into silver.
The Government reserved the right to establish the
rules for the mutual redemption of the notes between the
banks of issue and between these and the treasury during the legal currency and to provide for the establishment of clearing houses in the principal cities.
The same law organized a commission charged with the
supervision of the abolition of forced currency, presided over by the minister of the treasury, and composed
of four senators, four deputies, and four State officials, designated by the ministerial council. The commission was
to inquire into the precautions necessary to the putting
into effect of the law for the abolition of forced currency
and had the duty of watching the progress of the resulting operations, which they were to describe annually in
a report to be presented to Parliament.
The presentation of the bill for the abolition of forced
currency, made in November, 1880, produced an extraordinary effect. Exchange, which had remained at the
beginning oj the year in the neighborhood of 112, and
was still in the month of October not much below n o ,
fell in November to a minimum course of 101.62.
This rapid fall of exchange showed what had already
been proved in Italy, and, for that matter, in all countries
with a depreciated paper circulation; that is to say,
exchange is not only the natural, exact measure of the
loss of paper money as compared to metallic money, but
it is besides an article of speculation, as may be seen




50

The

Banks

of

Issue

in

Italy

clearly by the frequent and sometimes convulsive fluctuations it undergoes, which constitute a very great
injury for a country with an abnormal circulation; since
the frequent variation of the rate of exchange does
more harm than if exchange remained permanently at a
still higher level, because it furnishes an element of
continual uncertainty which injures international commercial relations seriously and drives away from the
country such foreign capital as it may need.
Speculators in Italy had organized their game on a
basis which assured its full success. They knew the
moments when the Italian Treasury needed to make
foreign payments in metallic money, especially the payment of the interest on the public debt, and knew approximately its amount, just as they knew, very nearly, the
sums needed in gold for payments of other kinds and for
interest on other Italian securities owned abroad. Therefore, as the time approached when the treasury and the
institutions and companies or business firms were to proceed to buy up exchange, speculators artificially advanced
its price, in order to sell exchange more dearly to those
who wanted it. Moreover, speculators bought up wholesale at home coupons of government rentes which they
sent abroad in order to receive payment in gold for them.
Against this second injurious expedient the Italian
Treasury succeeded at last in partially defending itself,
when in 1893 ft established the affidavit—that is to say,
the obligation of presenting the coupons of government
rentes with the sworn declaration that they were in actual
fact owned abroad—a legitimate and honest provision




51

National

Monetary

Commission

which, though bitterly criticised on its presentation,
succeeded admirably none the less and was later imitated
by other countries.
And the treasury succeeded also, though no less tardily,
in defending itself against gambling on exchange, made
specially to its detriment, by stipulating that the payment of customs duties should be made in gold.
The phenomenon manifested at the moment of the
presentation of the bill for the abolition of forced currency
was of an essentially psychological character. No really
perceptible modification of a kind to justify the decline
of exchange from n o to 101.62 had actually taken place
in the monetary situation of Italy. The quantity of
paper circulating in the country had not diminished, and
the metallic reserve was not increased. But the presentation of the bill, though announced for a long time beforehand, had none the less been considered doubtful. When
it was at last presented, it had the persuasive force of an
accomplished fact, and gave a stunning blow to the speculation which was still operating on the course of exchange.
It not only obliged those who were speculating for the rise
in exchange to liquidate their obligations, but it led immediately to speculation for the fall in exchange, now supposed to be on the way to par. And in fact, the favorable
forecasts were far transcended, since exchange continued
to fall, touching the minimum rate of 98.78 in June, 1881,
shortly after the ratification of the law for the abolition
of forced currency.
This fortunate situation was destined, however, to be
rudely disturbed in the following year by an event outside




52

The

Banks

of

Issue

in

Italy

of Italy which helped to make more evident the monetary
precariousness of debtor countries. In fact, the very
grave speculative crisis which acutely affected the Paris
market in 1882, caused to reappear with greater violence
the phenomenon already observed in respect to Italy.
Italian rentes, which had gone up brilliantly in Paris to
a maximum price of 93.50, as a result of the passing of
the law abolishing forced currency and of the fall of
exchange, fell to a minimum of 84, while exchange rose
rapidly to 104.22.

It is well known that the Parisian crisis was reechoed,
though with less intensity, in the other markets, and that
its liquidation was long and tedious. The Italian market
also was greatly disturbed in every quarter, at a moment
when, through the effect produced by the abolition of
forced currency, it was preparing with a certain eagerness
to give a more lively impulse to its economic activity.
The shares of the Banca Nazionale went down from a
maximum price of 2,400 lire to a minimum of 2,073, a n d
along with them all Italian securities suffered considerable
losses.
This harsh lesson should have led people to consider
that the economic situation of the country was still weak,
and should have made prevail in every department a
policy of moderation and concentration. But no sooner
had the crisis been liquidated than new plans of enterprises and work were brought forward which the students
of the economic conditions of the country judged exaggerated and dangerous, especially as a superficial observation of the movement which was taking shape in the




53

National

Monetary

Commission

country showed that it was due in too great a degree to
the work of speculation.
And while the State, after the victory of the abolition of forced currency, was entering upon a course of
prodigal extravagance, increasing expenditures beyond
all measure, the agricultural crisis broke out, principally
in the south of Italy. This was brought about for the
most part by the considerable and sudden fall in the price
of cereals resulting from the competition of other countries,
especially North America.
The difficult conditions in which southern Italy found
itself led the Bank of Naples in the beginning to increase
considerably its discount operations, and consequently
to extend its own action even in other parts of Italy.
The average total of discount operations of the Bank of
Naples, which had been 25,000,000 lire in 1883, r o s e to
28,000,000 lire in 1884 and to 50,000,000 lire in 1885; that
is to say, it increased 100 per cent. The discount operations of the Banca Nazionale went up from an average of
136,000,000 lire in 1883 and 135,000,000 lire in 1884 to
186,000,000 lire in 1885, an increase of 37 per cent. The
total discount operations of the six banks of issue increased
from 210,000,000 lire in 1883 to 212,000,000 lire in 1884
and to 303,000,000 lire in 1885. The increase amounted
to 44 per cent.
It was at this period that a lively competition arose
between the Italian banks of issue, which carried them
beyond the bounds to which they should have limited
their activity, and had serious consequences for all,
showing one of the most dangerous sides of the plurality
of banks of issue.




54

The

Banks

of

Issue

in

Italy

Whereas the Bank of Naples, not having shareholders
to whom dividends must be distributed, could give credit
at rates even less than normal, the Banca Nazionale was
influenced by other reasons of a special kind to obtain
a larger supply of profits to furnish dividends to its
shareholders. It has already been stated that the Banca
Nazionale, by casting its lot with that of the resurrection
of Italy, had exposed itself to the risk of going under
in case the politics and army of Italy experienced reverses; but since fate smiled on Italy instead, the Banca
Nazionale was able to reap a large profit from the
faith it had placed in the fortune of the country, and
from the bold financial support it had eagerly given to
.establish it.
And in fact, whether with profits derived from the operations carried on with the Government or with those received from gradually selling off, at higher prices, the rentes
received from it, the bank had been able until 1881 to
pay dividends of 100 lire, and even more, on shares paid
up at 750 lire. But the profits of extraordinary operations either having ceased or diminished, and the bank
having no more rentes to sell or to value in its balance
sheet at a liigher price, dividends went down to 89 lire in
1883 and to 78 in 1884.
Between the desire to rival the Bank of Naples, especially in the south of Italy, and that of not seeming to
diminish dividends, the business of the Banca Nazionale
became more active and apparently more profitable.




55

National

Monetary

Commission

The rivalry increased among all the banks, whose operations began to expand with a feverish movement, as may
be seen by the following table:
Banks.

Banca Nazionale Toscana.

Banca Toscana di Credito

Year.

Average
notes in
circulation.

1883
1884
1885
1883
1884
1885
1883
1884
1885
1883
1884
1885
1883
1884
1885

454
491
526+72

1883
1884
1885

14
14
14-

142
179
207 + 6 5

Average
metallic
reserve.
i54
232
213+59
112
134
137+25

52
62

19
26

71 + 1 9

32+13

44

19
22

47
43 - 1
36
38
42+6

16-

3

26
31
27+1

34
47
40
80
75
66
36
42
45
43
47
37
72
80
64
35
35
35

5
5
5

+ 161

Per
Discounts
cent. in millions.

+95

1.63S
1.699
2.359+724
303
342
597+294
143
164
265 + 1 2 2
117

Loans.

67
78
83+16
80
68
96+16
2
2
2
1
1

114
34

4+
12

82

II — I

59
44
30 — 29

064
°75 +32

151+
112
98
194+

3

11

+ 1,227

0 43

+66

a Carrying operations.

These figures give a general idea of the very hasty work
accomplished by the banks in the three years 1883-1885,
especially the noteworthy increase in discount operations,
which rose from 373,000,000 lire at the end of 1883 to
617,000,000 lire at the end of 1885, at the rate, that is, of
about 66 per cent, an increase which became in the following year 80 per cent in comparison with 1883, having increased in 1886 to 673,000,000 lire. But it may be well
to pause at 1885, because the progress of the banks of
issue, which was destined, as we shall see later, to follow a




56

The

Banks

of

Issue

in

Italy

dizzy course, was already beginning to give some anxiety
and to make evident the propriety of surrounding the
action of these banks with greater precautions and checking their impetuosity with moderating provisions. And
the propriety of this was all the more evident because
article 23 of the act for the abolition of forced currency,
although fixing for December 31, 1889, the termination of the privilege of issue granted to the six banks,
prescribed that in 1882 there should be presented a bill
aiming at establishing the rules by which the issue of
bank notes could be granted and regulated.
The lawmaker, having provided by the law of 1881
for the abolition of forced currency, saw that the
regulation of the circulation of the notes proper of the
banks was defective, and felt the necessity of provisions suitable to improve it. Ministers Magliani and
Berti had already presented in 1883 a bill in accordance
with the intention mentioned above, accompanied by a
learned and complete report; but the bill did not have
the honor of being discussed, nor yet the many other bills
that followed it, commencing with the one presented in
1886, and suggested by the desire not to hinder further
the reorganization of the banks, foreseen and promised
by the law of 1881, as well as by the anxiety awakened
in thoughtful people by the somewhat reckless course
pursued by the banks of issue at that time.
However, it should be mentioned in explanation, if not
in partial justification of the failure of the bills for banking reorganization that, for various reasons, the majority
of the Italian public never encouraged the lawmaker in




57

National

Monetary

Commission

the path of wise banking reforms. In the first place, the
public, especially in moments of greater business expansion, whether real or fictitious, commercial or speculative,
never expressed any other desire than that of having
liberally at its disposal the greatest possible quantity of
bank notes. It may be said that there has been in Italy
no occasion either of internal crises, or crises reflected
from without, of a nature prevailingly speculative, that it
has not been seized upon as a pretext to ask the Government for an increase of circulation—and it was not asked
for in an exceptional and transitory way, in the sense
accepted and practised with success in all the countries
suffering from crises, but in a much larger sense, without
time limit.
The increase of paper money was demanded on the pretext that the country was in need of a circulating medium,
confounding paper money with capital or believing that
it could create capital, without giving any thought to the
absolute necessity of keeping the issue of paper money
within the limits counseled by prudence, with due regard
to the existence of the metallic reserve, which is the safest,
the most solid, and the principal guaranty of the paper
currency.
But it was more than a question of a lack of encouragement; there existed actual hostility in Italy to any
attempt whatsoever at a wise banking reform. Here the
plurality of institutions revealed all its power for harm,
because every time the Government showed itself anxious
to touch upon the banks of issue it found itself hedged
about by all sorts of obstacles and difficulties, created




58

The

Banks

of

Issue

in

Italy

by all those who had interests in keeping up the existing situation, or who were demanding favors for one or
another of the banks. There is no need of pausing to point
out how this happened, since it is well known that in
parliamentary regimes all the special interests of any given
moment easily succeed in prevailing, and this without
the intervention of illegal and dishonest means, as may
generally be said to have been the case in Italy.
For the unfortunate events that have happened in
Italy in this connection may be considered as an exception to the general rule of correctness of the banks of
issue; an exception from which, perhaps, few countries
have been free. And in Italy the introduction of the
political element in favor of this or that bank was or might
appear justified by the distinctly regional character which,
as we have seen, the six Italian banks possessed. What
happened in Italy in this regard, that is to say, the defense
of the regional institutions, is not, moreover, very different from what has happened elsewhere and is now happening in Austria-Hungary, where for like reasons they
are asking for the separation of the Bank of Austria-Hungary into two banks—one for Austria, the other for Hungary. The only difference is that Italy, in preserving the
existing regional institutions, did not succeed in the
attempt to do the best thing, whereas Austria-Hungary
is trying to do a worse thing in demolishing the best thing
it already possesses.
If this explains, and up to a certain point justifies the
failure of all the attempts made to give, in good season, a
more normal adjustment to the banks of issue in a




59

National

Monetary

Commission

country which had, with a great effort, that was afterwards converted into a great sacrifice, abolished forced
currency, these attempts attest simply that enlightened
minds understood the needs of the situation and that
several of the men who came into power tried to provide
for these needs.
And without doubt, if Italy had succeeded between
1885 and 1886 in imposing precise rules and severe regulations in a matter of so much importance, the economic
status of the country would have been spared serious
losses.
The situation of the banks of issue in 1885 in comparison with that in 1883 deserves meanwhile a more
careful examination. The circulation of the six institutions shows an increase of 154,000,000 lire against a decrease of 25,000,000 lire in the metallic reserve, wrhich
had gone down from 405,000,000 lire to 382,000,000 lire,
while that for sight liabilities shows an increase of
5,000,000 lire.
At the same time, however, the metallic reserve possessed by the treasury had diminished; from the sum of
727,000,000 lire on May 10, 1883, oi which 600,000,000
lire had been received from the loan, it had diminished
on June 30, 1885 to 274,000,000 lire, with a decrease of
453,000,000 lire in connection with the decrease arising
from the redemption in metallic money of the consortion bank notes; these had gone down from a total of
940,000,000 lire on December 31, 1882, to 196,000,000 lire
on December 31, 1885.
The banks of issue began to feel meanwhile that their
discounts were becoming burdensome. A large part of




60

The

Banks

of

Issue

in

Italy

the operations, especially those made in southern Italy,
were not paid on maturity, so that renewals had to
be granted sometimes with a slight reduction of the
credit. And when the debtors showed that they could
no longer meet the obligations they had assumed, because
as a result of the agricultural crisis the property was giving increasingly small returns, the banks took steps to
protect themselves by obtaining mortgages as guaranties
for their credit.




6*

CHAPTER

IV.

THE CREDIT FONCIER OR REAI/TY CREDITS OF THE BANCA
NAZIONALE NEL REGNO D'lTAUA.

It was in that same year of 1885 that the Banca Nazionale nel Regno established the credit foncier. Because
of the importance it assumed in relation with the bank,
and because of the changes to which it was subjected,
the founding of the credit foncier of the Banca Nazionale
formed a noteworthy episode in the history of Italian
banking. A brief review of this event seems, therefore,
opportune.
As soon as the general director of the Banca Nazionale,
Signor Giacomo Grillo, announced the intention of founding a realty credit service, there arose violent discussions
and criticisms. It was said that a bank of issue, which
ought to consider the shortness of duration and the
sure recovery of its loans, could not properly take part
in mortgage operations, by their nature necessarily for
terms of many years, and in support of this argument the example was brought forward of the banks of
issue of the principal countries. The question was discussed at length whether the proposed credit foncier,
even though organized as the general director of the bank
proposed, with a separate administration and technically
autonomous, under the close supervision of the administration of the bank, would not end by involving the responsibility of the latter.
The general director defended his plan before the
superior council of the bank and the general meeting of




62

The

Banks

of

Issue

in

Italy

shareholders. He argued that it was not true that examples were completely lacking of banks of issue which
had established realty credit departments and quoted
those of the banks of Austria-Hungary, Greece, Scandanavia, besides the two banks of Naples and Sicily, and
expressed the conviction that by assigning to this special
department a capital to be taken from the statutory
reserve of the bank, available for the tenfold issue of
realty bonds, according to the laws in force, no responsibility could fall on the Banca Nazionale.
He then justified the founding of the credit foncier by
the convenience of affording aid to urban and landed property which was suffering from a grave crisis, especially in
southern Italy.
In the opinion of the general director of the Banca
Nazionale, the plan was fully justified by the disproportion
between the needs of the urban and landed property in Italy
and the inadequacy of the means to satisfy them. The
law of June 14, 1866, had authorized the transaction of
mortgage operations by the Bank of Naples, the Cassa di
Risparmio delle Provincie Lombarde, a solid and welladministered institution, which was later to rise to great
power, the Istituto Opere Pie di S. Paolo in Torino, the
Monte dei Paschi di Siena, and the Cassa di Risparmio
di Bologna, all solid and exemplary institutions. The
Bank of Sicily was later, by royal decree of May 1, 1870,
authorized to carry on realty operations. Judging by
the nature of these and of other institutions authorized
to make mortgage loans, there is reason to believe that
this kind of credit was regarded in Italy almost as a form
of charity.
3978i°~-n




5

63

National

Monetary

Commission

But what especially led the general director of the
Banca Nazionale to propose the founding of the realty
credit department was the desire to relieve the discounts of the bank of the operations which, although they
were in appearance convertible credit, had nevertheless become, for the reasons indicated, substantially real
and proper mortgage operations, impossible to be liquidated in a short time, and guaranteed by mortgages on
rural and urban landed property. The general director
of the bank was moved, therefore, by lofty economic and
monetary considerations, and judged that the transformation, in proper form, of Jthe discount operations now
unrealizable was desirable not only in the interests
of the bank, but also in the interests of circulation,
which would be restricted by the amount corresponding to the unrealizable operations by buying in the
realty bonds that the credit foncier administration
issued contemporaneously with the loans. Thus it may
be said that this consideration of general interest prevailed over the bank's own interests, which if it had kept
for the operations their character of bills of exchange
would have had, over against the corresponding interest
paid by debtors, only the burden of the tax on circulation at the rate of i per cent, whereas replacing the notes
by issues of realty bonds the bank was to pay an interest of 4 and 4 ^ per cent, except for the compensation
to be derived from the profit on new banking operations,
which could be carried on with the sums collected by
the liquidation of old operations through the investment
of the capital assigned by the bank to its credit foncier
and through the sale of realty bonds.




64

The

Banks

of

Issue

in

Italy

But, although banking operations received a great
impetus in consequence, nevertheless when the Banca
Nazionale decided upon organizing the credit foncier it
ought probably to have decided rather to restrict its action,
because its own conditions and those of the market made
advisable following a policy of concentration.
In the ideas displayed on this, as on other occasions, and
in the perseverance with which he struggled to make them
triumph, the general director of the Banca Nazionale
showed that he possessed rare qualities which would have
succeeded in giving a sound direction to the bank, if the
seriousness of the crisis which seized Italy, through a number of causes of an economic and political nature, had not
attacked every part of the financial, industrial, commercial, and banking activity of the country and had not carried away, like a raging torrent, even the strongest bodies
that it encountered in its devastating course.
The exercise of realty credit by the Banca Nazionale
approved by the general meeting of shareholders held February 26, 1885, w a s authorized by royal decree on April 5
of the same year, in conformity with the permission that
the act of February 22, 1885, on realty credit, had given
the Government to grant its exercise to such institutions
as should have fulfilled the requirements of the said law.
To the realty credit administration was assigned at
first a capital of 25,000,000 lire, taken from the statutory
reserve of the bank; to this were added in 1889, by a new
decision of the meeting of shareholders, another 5,000,000
lire, also taken from the reserve. From September 7,
1885, the date of the beginning of the operations, to June
30, 1893, the date when they ceased, because of the




65

National

Monetary

Commission

banking law then under discussion which forbade all
further mortgage operations on the part of the banks
of issue and ordered the liquidation of those already
under way, the credit foncier of the Bank, with the
30,000,000 capital, had concluded mortgage loans for
322,825,500 lire—that is to say, through the employment
of the capital assigned, and in conformity with the law,
Lire.

In 160 mortgage accounts current in cash
In 834 loans in cash
Total of cash operations
In 2,470 loans in 4 per cent bonds
In 2,675 loans in 4% per cent bonds
Total

12,073, 500
17,991,000

.•

30,064, 500
135, 349, 500
,.. 157, 411, 500
322, 825, 500

By way of proof of what has been said concerning the
considerations that led the general director of the bank to
found the realty credit department, it may be well to
state that in the first few years it was feverishly active.
In the first fiscal year requests for loans were presented
amounting to 260,000,000 lire. In the report to the stockholders for the fiscal year 1886, the general director declared: "The credit foncier of the bank has developed to a
degree beyond all our expectations. This development
proves very clearly that its creation answered a need felt
by the country." By December 31, 1886, the credit
foncier of the bank had definitely contracted for operations amounting to about 62,000,000 lire, and had under
examination requests for operations* amounting to about
147,000,000 lire. The greater part of the operations were
concluded in the Province of Rome, because of the needs
already shown by urban property in connection with the
building movement which was in process of development




66

The

Banks

of

Issue

in

Italy

there, and in the provinces of southern Italy on account
of the agrarian crisis which needed considerable help.
In the year 1887 the operations encountered something
of a check through the difficulty in placing the realty
bonds, caused by a money stringency owing to stock
exchange crises and to difficulties of the State finance which
aroused anxiety because of a new deficit in the budget.
However, in 1887 mortgage loans were concluded for the
amount of 74,000,000 lire, and at the end of the year there
still remained under consideration requests for loans for
123,000,000 lire.
In the year 1888 there was a lull in these operations,
which amounted to 45,000,000 lire only, making the total
for three years 181,000,000 lire. The general director of the
bank announced that "the operations of the credit foncier
have now entered upon their normal course.. To the rush
for mortgage loans of the first few years there has succeeded an orderly and constant demand."
Now, it is interesting to note that out of the sum of
181,000,000 lire in operations concluded by the credit foncier in the first three years, about 85,000,000 lire were used
to liquidate unrealizable operations in bills of exchange
in the discounts of the bank, and that out of a sum
of 278,000,000 in loans made for the whole of 1890,
135,000,000—that is to say, nearly half—were employed for the same purpose.
Naturally, in view of the vicissitudes, anything
but prosperous, through which the country passed,
dark days were not long in coming upon the credit
foncier of the bank as well. Borrowers were beginning to find themselves in straits, whether as a result of




67

National

Monetary

Commission

bad management of their property and ensuing wastefulness of their patrimony or because the crisis from which
landed property was suffering was growing acute, they
commenced by being behindhand in payments of dues
of amortizement, and ended by suspending payments altogether. The credit foncier had to put up at auction
the mortgaged property, which, not finding purchasers,
was adjudged to the credit foncier itself. Meanwhile,
whether to fill up gaps which were appearing in its balance, or whether to withdraw from the market realty
bonds for sums corresponding to loans on property
that had come into its possession by auction, the credit
foncier was obliged to apply to the Banca Nazionale,
which opened for it a cash credit.
The further aggravation of the agricultural crisis,
especially in the south of Italy, to which was then added
the building crisis of Rome and other important centers
of the peninsula, aggravated the situation of the credit
foncier of the bank, and with it that of other kindred
institutions.
To remedy the situation, which was threatening to
become serious for the realty credit institutions and their
borrowers, opportune legislation came to the rescue,
containing provisions which reduced the fiscal taxes
of various kinds, prolonging terms of payment, and
giving other facilities of mutual advantage.
The vicissitudes of realty credit in Italy have made
plain the dangers which can be incurred by giving
too great facilities to credit, even in operations solidly
guaranteed, which, through being represented on the
market by various certificates, different from bank




68

The

Banks

of

Issue

in

Italy

notes, and through granting to the borrowers a long
period of time to satisfy the obligations assumed, would
seem to be protected from every surprise. For even
when the borrowers, by bad administration of the
property or through loss of their free capital, find themselves in the situation of not being able to meet the
obligations assumed, the property offered in guaranty
should be sufficient to reimburse promptly the credit
institution.
But what may and does happen in normal times no
longer happens in moments of crisis in general, and of
crises of landed property in particular. For when the
value of real estate as well as of securities declines, capitalists are not willing to decide to profit by the decline
and buy; they always hope and wait for prices to go
down still lower, and finish at last, most frequently,
by making up their minds when, after the crisis has
passed, prices are going up again.
Meanwhile the law of 1893, of which we shall speak
presently, having stipulated that the realty credit departments of the banks of issue should be liquidated, the bank
was obliged to provide for regulating its relations with
its own realty credit department, with the result on December 31, 1893, of a debt of about 50,000,000 lire, over
against which the Credit Foncier ceded to the bank
about 17,000,000 lire in real estate (which had come
into its possession through auction), and other property
belonging to it, while the bank contributed to close the
account by deducting 30,000,000 lire from its paid-up
capital and by using 2,802,918 lire available residue of
a payment of 30,000,000 lire made in 1894 by the share-




69

National

Monetary

Commission

holders to amortize bills which had become overdue
and were included in operations of difficult and tardy
liquidation.
On December 31, 1908, the loans still current of the
credit foncier of the bank in liquidation amounted in
all to 112,392,980.70 lire, and were represented to the
amount of about 4,200,000 lire by loans in cash, and for
the rest by obligations in circulation for a total of
111,181,500 lire, over against which was the assigned
fund of 30,000,000 lire instead of 11,000,000 required by
the terms of the law. The credit foncier had besides
ordinary and extraordinary reserves for about 6,500,000
lire.
The surplus assets of the credit foncier and the very
favorable conditions under which the liquidation was
now going on showed that it could, in the end, indemnify
the bank for the sacrifices it had been obliged to make
in the past.
The bank, profiting by the favorable conditions of the
market, converted in October, 1903, the 4 K per cent into
4 per cent bonds, and in October, 1905, converted the
4 per cent bonds into 3.75 per cent.
The realty credit administration of the bank participated in the founding, in 1886, of the Istituto Italiano
di Credito Fondiario, created especially to come more
freely to the aid of real property, which was demanding
ever increasing assistance. The participation consisted
in the payment of 5,000,004.10 lire in cash and in the surrender of mortgage operations in cash for 9,999,995.90—
that is, a total of 15,000,000 lire.




70

CHAPTER

V.

EXCESS OF BUILDING AT ROME—DIFFICULTIES OF FINANCE—
EMBARRASSMENTS OF THE BANCA ROMANA.
Returning to t h e general conditions of Italy in 1885 a n d
to those in which t h e Italian banks of issue were involved,
it is seen t h a t t h e unloading of a p a r t of t h e banking
operations m a d e b y t h e Banca Nazionale in its credit
foncier administration did not diminish its discounts;
these, contrary t o t h e expectations a n d intentions of t h e
bank, continued instead t o increase considerably, just as
those of t h e other banks of issue increased.
Discount operations, which u p to December 31, 1885
h a d advanced to 617,000,000 lire, went u p to 673,000,000
lire in 1886 and t o 713,000,000 lire in 1887, going down to
674,000,000 lire in 1888 and rising to 743,000,000 lire in
1889, a total which was not exceeded except on t h e occasion
of t h e crisis of 1907. The increase in discount operations of
t h e Italian banks of issue was due largely to t h e aid given
by t h e m to t h e building associations, which, with t h e haste
t h a t always accompanies work of a prevailingly speculative character, h a d undertaken t o build houses in Rome
and other Italian cities where a certain lack of buildings
h a d been noticed, a lack which was especially evident in
Rome because of t h e growth of population, due for the
most p a r t to t h e establishing a n d extending of t h e public
administration in t h e capital of t h e kingdom.
The plan of procedure of those interested in t h e building
enterprise in R o m e a n d other cities was not unlike t h a t
observed before a n d later in other countries. They began
in Italy with t h e purchase of land, for t h e purpose of sell-




71

National

Monetary

Commission

ing it again at higher prices; they continued by having
recourse to credit, mortgaging the land to obtain the means
necessary to build the first story, and so, from story to
story, until the completion of the building. This, with
interest and incidental expenses incurred in obtaining the
capital, represented normally a cost to which the returns
could not adequately correspond, in the economic conditions of the population, especially in Rome, composed
largely of employees.
Very soon, therefore, these building associations found
themselves surrounded by grave difficulties. They had
been organized partly to build dwelling houses directly,
partly to furnish capital to private builders who had come
in swarms on every hand, but especially from people
least provided with capital; small contractors, and even
simple stonemasons, had become unexpectedly and provisionally proprietors of great palaces, which the crisis,
breaking out before long like a blast of wind, was to carry
away from them as if they were built of the same first
material—paper—with which the capital had been got
together, also of paper.
The period that elapsed between 1885 and 1890 was one
of the saddest Italy has ever experienced. It was sad
because of economic and financial conditions, and was not
destined to be surpassed, even in moral seriousness, except
by that between 1893 a n ( i l 8 94- The lack of a single
powerful bank of issue made itself sharply felt at that
time, but instead of the Government's being inspired to
an act of salutary and heroic energy, it was persuaded to
persist in its error. There was a considerable increase of
circulation, which had risen from 900,000,000 lire in 1884




73 -

The

Banks

of

Issue

in

Italy

to 948,000,000 lire in 1885, to 1,032,000,000 lire in 1886, to
1,075,000,000 lire in 1887 a n d 1888, and to 1,116,000,000
lire in 1889. This increase in circulation was confronted
by a decrease in the percentage of the metallic reserve,
which went down from a maximum of 51 per cent in 1883
to a minimum of 34 per cent in 1889; whereas, meanwhile,
by the redemption of the association bank notes the State
had considerably reduced its metallic gold reserve, which
amounted at the end of 1889 to only 160,000,000 lire.
The budget had closed with a surplus of 35,000,000 lire
in 1884, of 15,000,000 lire in 1885, and of 12,000,000 lire
in 1886, but the surplus was soon converted into a deficit
of 57,000,000 lire in 1887 and of 230,000,000 lire in 1888.
The rupture of commercial relations with France
helped to aggravate the situation, because the Paris
market, having become hostile to things Italian, began
to sell the rentes with such fury as to make them decline
from a maximum price of 102.55, reached in 1886, to a
minimum of 90.80 in 1889. Consequently, through the
return of a considerable part of them into Italy, exchange
on Paris, which had gone down again, as we have said, in
1883, after the liquidation of the crisis of the French
market, to a minimum rate of 98.75, rose in 1888-89 to
more than 102.
Just as comfort and easy circumstances, along with
tranquillity, lead to thoughtlessness, so difficulties and adversity lead to melancholy meditation; people reconsider
their past course, and pass in review the causes of present
evils. Italy found in this review the reason of the state
of economic and financial depression into which it had
fallen—it found it in the disorder in which the banking




73

National

Monetary

Commission

regime had been left; in the frantic career of financial
extravagance which had swelled beyond all the limits of
prudence the national debt, besides exhausting the contributing power of the citizens, on whom had been imposed
unbearable fiscal burclens.
Naturally, in the presence of the grave embarrassments
of a situation in which every one in the Government, in
Parliament, and in the country had his share of responsibility, the criticism became still more bitter of the work
of Minister Magliani, whom they wished to hold solely
responsible for the mistakes made by all and for the consequences which had resulted from them. Above all, the
abolition of forced currency, in presence of the reappearance of agio, was harshly criticised, and not a single one
of the 266 deputies who had voted for it with great enthusiasm, against only 27, rose to defend the minister, for
whom, in remembrance of the great event, a gold medal
had been coined.
However, whatever the calm technical judgment might
be as to the law for the abolition of forced currency, it
should have been recognized that many causes foreign
to it helped contribute to its failure. The abolition of
forced currency would not have miscarried if the State
had not recklessly plunged into all sorts of expenses for
railroads, for public works, for the African war, and other
things; and especially if, as had been foreseen and promised by Magliani himself, energetic measures had been
taken to complete the monetary programme by a careful
regulation of the banking system.
On the contrary, Italy was not wise enough to derive
any salutary lesson from the experience it had gone




74

The

Banks

of

Issue

in

Italy

through, particularly in the question of regulating the
banks and circulation. It may be said, rather, that the
discovery of the abuses then revealed in that quarter led
it to persevere and commit new and more serious errors.
Under the pressure of the clamors of public opinion,
partly perverted by those who had interests in perverting
it, not only did the Government not provide promptly
for checking and confining to its proper course the stream
of paper money that was overflowing its banks in all
quarters, but it listened rather to the voice of the expansionists who were accusing it of stopping the promised
revival of the activity of the country by denying the
necessary means for the movement of business.
Meanwhile, at all the meetings of the councils of the
banks of issue, the government commissioners gave warning that they were obliged to state that the circulation, as
appeared from the statements presented to the councils
themselves, exceeded the legal limit. And the Government, on the reports of the commissioners, requested the
banks to return to the normal limits. On their part, the
banks replied that the conditions of tbe market had
rendered necessary an enlargement of circulation, and
they promised to return to the legal limits. This correspondence between the Government and the banks continued for some time, and was one of the humorous sides
of the Italian banking question, which had other humorous
sides, although in the midst of exceedingly sad ones.
On the other hand, at the point things had reached, it
was not possible to proceed with very severe methods,
because such action would have precipitated the situation and rendered the catastrophe still more serious, just




75

National

Monetary

Commission

as, again, granting the insistent demands of the expansionists, although putting off the catastrophe, would
have made it more serious. Nor, for the reasons stated,
was it possible to apply to the banks all the provisions of
the law of 1874, which, as it had not been repealed by the
law of 1881, still remained in force. According to
this, the increase in circulation recognized as necessary
for extraordinary and urgent needs of commerce could
be granted by the Government after trying two successive increases of the discount rate, on condition, however, that the excess of notes should not exceed 40
per cent of the capital of the banks; that the increase
was not to last for a period of more than three months,
and that the profits cleared on the operations should
accrue entirely to the treasury. And it was even less
possible to apply the statute under which the bank
should be obliged to pay the State, by way of penalty, a
sum equal to the total of the excess of circulation beyond
the legal limit or the deficiency of the metallic reserve.
This statute, under the terms of the established regulation, was to be applied, after reporting the transgression
to the Court, by the application of the penalty; it was
seen in practice how ludicrously this extreme severity
was eluded.
This was the case not only because it was a question of
provisions of exaggerated severity, but because of the manner in which the transgressions of the law had come about.
On account of the situation which these transgressions
had created in the country, and more especially because
of the share the Government had had in them it could
not condemn the banks without condemning itself. For
it was just at this time that the intervention of the




76

The

Banks

of

Issue

in

Italy

Government in the conduct of the banks of issue was
most actively and openly manifest, as will be seen later.
However, the Government expressed the intention of
undertaking to give better regulations to the banks, and
presented a bill to Parliament, the third or fourth since
the abolition of forced currency, which did not fare
differently from those which had gone before it, and
aroused violent discussions, polemics, and criticisms. At
the same time the Government ordered an inspection of the banks of issue to ascertain their conditions,
which, especially in what concerned the Banca Romana,
seemed very serious. A first audit of the cash of the
Banca Romana seemed to show a deficit of 8,000,000 lire.
The audit was suspended to make further examination of
accounts, and when it was continued a few days later the
cash was found to be correct. However, other irregularities were found in the methods of issuing and destroying
bank notes, and in general it was discovered that the financial conditions of the bank were not sound and normal.
Once more the Government let slip the opportunity to
liquidate the Banca Romana or merge it in the Banca
Nazionale, and, with the others, to create a great institution of issue, as was already insistently demanded in
various quarters. The bill for the reorganization of the
banks of issue failed for the very reason that whereas
it favored the inclinations of the ignorant crowd, under
the influence of those who were interested in keeping up
the existing disorder, it was in too open contrast with
public interest and the opinion of the most competent
men of the country. It seems that the author of the bill,
Minister Miceli, a very commonplace man, absolutely




77

National

Monetary

Commission

without the most elementary economic education, had
taken upon himself the burden of coming to the aid of the
weak.
This bill resembled the statutes of a society for the
guardianship of minors and the feeble-minded; the anxiety
not for the public interest, but for the defense of small
banks, was evident in every part of it, so full was it of
provisions intended to defend the minor banks from
an imaginary danger of oppression on the part of the
larger institutions, and especially on the part of the Banca
Nazionale.
It was very evident that the Banca Romana, not through
the hostility of others, but because of its own difficulties,
was not in a position to accomplish the redemption of
its notes which had entered the coffers of the other banks,
a redemption which had to be made regularly every ten
days in conformity with the law and regulations. Notwithstanding this fact, the minister, instead of rendering
the provisions on this point more efficacious, so as to make
the Banca Romana feel more clearly the necessity of limiting its activity and restricting its circulation, proposed
that the obligation of redemption of bank notes should be
confined to the tenth part of the circulation of each bank.
This was equivalent to abolishing the obligation of
redemption between banks which, under the system of
circulation really at forced currency, represented the sole
and only control, the one single check on their currency.
It may be well to say that of the six Italian banks only
the Banca Romana demanded insistently and loudly the
provisions relieving it from the burden of the periodical
redemption of bank notes; and this began in 1887—that




78

The

Banks

of Issue

in

Italy

is, from the time when its situation became particularly
unfavorable—when it had difficulty in redeeming the notes
that were presented to it in continually increasing number, because of the greater quantity circulating in the
country, which tended to return to the coffers quickly.
It was then shown that the greater the quantity of bank
notes in circulation, at legal or forced currency, the more
quickly they are returned to the coffers of the bank.
With a limited field of action, for a long time confined
to the Province of Rome alone; with a great part of its
assets unrealizable or overdue, the Banca Romana did
not receive sufficient payments to enable it to redeem its
notes which entered in all the greater quantities in the
coffers of other banks, because the public, not completely ignorant of the difficulties of the Banca Romana,
showed that it did not approve of the notes, and made
haste to get rid of them. As a result the bank found itself
obliged to resort to costly expedients, such as the sale in
the markets of northern Italy of Italian rentes in return
for notes of the Banca Nazionale to be presented to the
latter in redemption of its own notes; these rentes it
bought back at Rome with its own notes, thus disturbing
also the home market of rentes.
At the distance of twenty years, when the facts of the
situation have either been forgotten or grown confused,
what happened then in Italy may well seem incredible.
But it must be stated and repeated that the Government
believed the very gravity of the situation justified its
procedure.
Doubtless it seems inexplicable to-day that the Government should allow an institution of issue to violate the
39781 0 —ii




79

National

Monetary

Commission

articles of the law; that, also, with manifest injury to
the other banks of issue, it should prepare to lay before
Parliament new laws all to the advantage of the Banca
Romana, which was, among them all, least worthy of
consideration; but what seems inexplicable to-day had
at that time a reason, if not a justification, in the special
conditions of the capital of the Kingdom, and in general
in the ideas which prevailed in Parliament and the
country concerning banking regulations, ideas decidedly
and unconditionally in favor of the plurality of banks,
the grave defects of which people either did not or would
not see.
The feverish expansion which the building industry
entered upon had flooded Rome with a new population, composed largely of farmers who abandoned the
country, attracted by the seductions of the city and the
easier living offered by the work of building. The Banca
Romana, hard pressed by its difficulties, and not being able
to redeem the notes that were presented to it from other
banks, turned to advantage the conditions created in the
capital by the great mass of workmen who had swarmed
there for the work of building, and declared that if it
were forced to redeem its notes, it would be absolutely
obliged to suspend operations; it did not fail to depict to
the Government all the consequences that would follow
the suspension of the work in Rome, and of the idleness
of thousands of workmen. And since there were newspapers on hand that obligingly echoed this anxiety of the
Banca Romana for the well-being of the working classes,
and for the tranquillity of the capital of the Kingdom, the
workmen began to grow restless and threatened to make




80

The

Banks

of

Issue

in

Italy

trouble, which naturally exercised a certain influence on
the men who were in the Government, at a time when
labor disorders, agitations and strikes had not, yet become
national institutions, as it is now the case.
Nor was the conciliatory and benevolent attitude of the
Government toward the Banca Romana due to this
alone, for the bank managed cleverly to touch and make
vibrate other strings of its instrument. It had succeeded
the ancient Bank of the Papal States; it was given the
monopoly of issue of these same States; it was in possession of special privileges, so that, as we have seen, the
papal government itself had undertaken to guarantee its
notes. In view of all these things, the Banca Romana
did not let slip the opportunity to bewail the happy time
in which it was absolute mistress without rivals and without enemies. And it turned to account the parochial
sentiment of the population, making it seem that its
adversaries were attempting to oppose in it the only
local financial institution in hatred for the city. Having
placed the question on this basis, it was easy for the
Banca Romana to find adherents and helpers, and to
win over the sympathy of part of the population, all the
easier to obtain since the Banca Romana seemed to be
the victim of the new elements which had come to Rome
from other provinces and were fighting in it a Roman
institution.
Henceforth there were few who were not persuaded
that the Banca Romana was a victim and that the
Banca Nazionale, which had long cherished the plan of
becoming sole bank of issue, was trying to throttle it.
And though even after the discovery of the disastrous




Si

National

Monetary

Commission

situation of the Banca Romana the belief in this legend
still persisted, just as many people in Italy and elsewhere
still believe it even to-day, nevertheless, as it will be easy to
prove, it is nothing but a fiction cleverly foisted on the
public; and since the relations existing between the
Banca Nazionale and the Banca Romana and the results
that came from them are of an interest which transcends
historical curiosity and makes clearer one of the vices
of the plurality of banks, it does not seem superfluous
to reestablish the truth of these things.
That Signor Giacomo Grillo had become a decided
partisan of the superiority of the unity of issue after the
painful experiences caused by plurality is a fact beyond
all doubt; but being a man of exemplary uprightness and
loyalty, he wished the desired end to be attained, in the
interests of the country, by the common consent of the
various banks of issue and the Government, and the
approval of Parliament. Consequently, he attempted
several times to negotiate a fusion, both with the
Banca Nazionale Toscana and the Banca Romana.
But the situation of the latter bank, as was shown
later in 1893, was an obstacle to any sort of agreement,
since consenting to a fusion would have meant revealing the ruinous condition it was in. For the rest, the
personal relations of the general director of the Banca
Nazionale with the governor of the Banca Romana were
marked by the most sincere cordiality, and when the
Banca Romana began to find itself in difficulties and
unable to redeem its notes, the general director of the
Banca Nazionale was liberal in making concessions to it.
He consented to keep back in the coffers of the Banca




82

The

Banks

of

Issue

in

Italy

Nazionale as much as 4,000,000 lire in bank notes of the
Banca Romana without demanding redemption; and
since, later, this sum subtracted from the obligation of
redemption proved insufficient, the general director willingly consented to the recommendations made by the
Government to show the greatest consideration for the
Banca Romana, and declared that his attitude was conciliatory; and on September 24, 1890, he laid the situation before the superior council and proposed to increase
from 4,000,000 lire to 6,000,000 lire the fund of notes of
the Banca Romana to be held back from redemption,
especially as the Government had consented to free from
taxation a corresponding sum of notes of the Banca
Nazionale.
The council, although expressing its anxiety for the
responsibility which the Banca Nazionale was assuming,
approved the proposal of the general director. October
22 of the same year, after fresh recommendations from
the Government, the general director advised increasing
to 9,000,000 lire the cash credit opened for the Banca Romana ; by this, with the fund held back and the cash credit,
the Banca Nazionale had consented to withhold from the
obligation of redemption 15,000,000 lire in bank notes
of the Banca Romana, which then had a circulation of
74,000,000 lire.
But this is not all: as a result in 1894 of the Government investigation of banks, it was found that in 1888,
at the time of the inspection made of the Banca Romana,
the general director of the Banca Nazionale, on a simple
request from the Governor of the Banca Romana, had
consented to pay over to it the sum of 8,000,000 lire, which




83

National

Monetary

Commission

amount was supposed to have been used to fill up the
deficit discovered in the first audit of the cash.
The discovery of the loan made by the Banca Nazionale
to the Banca Romana suggested to Deputy Cavallotti the
idea of making an inquiry of the Government as to the
relations between the general directors of the two banks.
So Signor Grillo, reputed to be a most bitter enemy of
the Banca Romana, appeared now as an accomplice in the
misdeeds of this bank, for which it was believed he had
furnished the means to make up a cash deficit! Deputy
Cavallotti, warned of the grave error into which he had
fallen in suspecting an understanding between the heads
of the two banks, refused to lay his question before the
Chamber of Deputies, even though the theme, however
absurd, must have seemed attractive, since to attack and
fight the Banca Nazionale and its administration had
always been and was still a popular and meritorious
undertaking.
In fact, if the Government, in the difficult moments the
country went through, which had made perfectly evident
the deficiencies of the banking system, still hesitated to
make the timely provisions, it was certainly not because
of unjust compromise or for unworthy reasons; but it
was on the one hand from the anxiety not to create
more serious embarrassments in the country by disturbing the state of things which had grown up, and on the
other hand, from the persuasion that any bold and radical
plan of banking reform would fail in the face of the coalition of those interested in maintaining the banking system
then in force. There is no doubt that a very great majority of the Chamber was in favor of the plurality of banks




84

The

Banks

of

Issue

in

Italy

because of considerations of a regional nature. And,
indeed, whether from fear of being suspected interested
partisans of the Banca Nazionale, or for other reasons,
the fact is that never did a single deputy rise in the
Chamber to call to mind its meritorious service or to defend its interests, ever one and the same with those of the
country, whereas the guardianship of the interests of the
minor banks always found strong and zealous champions.
In examining in 1893 the banking bill presented by the
Government an influential deputy felt obliged to write that
the plurality of banks was one of the most precious conquests and unchanging principles of the former party of
the Left of the Italian Parliament.
Francesco Crispi, in the presence of the severe criticisms
aroused against the bill presented by Minister Miceli, was
persuaded of the necessity of a change of direction. Although he did not have the clearness of ideas that results
from complete knowledge of the subject, he had, however,
the broad insight that Italy needed to lay aside a hybrid
banking system which had been shown in every respect to
be pernicious, and he felt the noble ambition to provide the
country with a powerful institution, which, after the example of France and England and other countries, should be
an effectual regulator of the currency and a strong protector for State and people in difficult moments.
Having set aside the Miceli project, he called to Rome
Francesco Ferrara, the glory of economic science, and gave
him the task of studying the very serious question and proposing for it the solution which best answered the situation
of Italy at that moment. This illustrious man, who was
the most weighty champion of economic liberty, and who,




85

National

Monetary

Commission

as deputy and minister, had fought every idea of monopoly
and had flung himself violently against the close relations
which had existed in the past between the State and the
Banca Nazionale, was not deaf to the clear call of the situation and ended by recognizing that even Italy would, like
other countries, derive marked benefit from the action of
a great central bank of issue.
But the ministry presided over by Francesco Crispi fell
before he had been able to give concrete form to his plan;
it fell, it was said, perhaps not without truth, for the very
reason that it had expressed the bold intention of creating
a sole bank of issue—and the banking confusion continued.
The Italian Government, for the reasons stated above,
not only did not know how, did not wish to, and could not
intervene energetically to reform the currency, but was
itself the cause of its growing worse. And yet, however
much political animosities, impelled by that instinct of
cannibalism which is the principal characteristic of the
politician, attempted to shatter the reputations of those
who were in the Government at the time of the banking
disorders, we must repeat that, save for minor exceptions,
the men who came into power gave a lofty example of
honesty and rectitude. The intervention of political
power in banking affairs may, from certain points of view
and with due allowance for the grave difficulties through
which Italy passed, be considered untimely and harmful; but at the same time it must be acknowledged upright in the intentions that counseled it, which were
always prompted by the desire to spare the country
serious disasters.




86

CHAPTER

VI.

THE BUILDING CRISIS AND BANKING SUBSIDIES.

We have already seen the procedure of the building
industry at Rome and how it was based essentially on
credit. We should add that when the slender funds were
exhausted that the building associations and other banking
firms could place at the disposal of the building industry,
it was necessary for the builders and manufacturers who
were connected with the building movement of Rome and
the other cities to discount and rediscount their paper with
foreign banks and institutions, especially in France and
Switzerland.
Now, it was precisely in the years 1887 a n d 1889 that
the close relation that exists between the economic conditions of a country and those of public finance was once
more made evident; it was manifest how easy it is, sometimes unavoidable, for the disorders of the latter to exercise an immediate direct effect on the former; just as
impaired finance damages the public economy, so the bad
conditions of the public economy are reflected unfavorably on finance. The unfriendliness of the Paris market
at this time, due to misunderstandings that were fortunately cleared up later, had, as we have already said, inflicted considerable losses on Italian rentes and likewise
on other Italian securities owned in that and other foreign markets, with the inevitable effect of the excessive
rise in exchange. The principal cause of the decline in
Italian securities and the rise in exchange was the unexpected appearance in the budget of a deficit of 230,000,009




87

National

Monetary

Commission

lire, of which 126,000,000 lire were due to an increase in
military expenditures, besides a deficit of 235,000,000 lire
in extraordinary expenditures for building railroads.
The situation seemed disquieting also because speculators interfered to aggravate it to their own advantage
by manipulating prices downward. It was then that the
foreign banks and bankers who had given extensive credit
to building associations and builders made it plain that
they were not only not disposed to give further discounts
to either of them, but also that they would refuse to
renew the current operations, of which they were demanding immediate payment on maturity. From an
approximate estimate, inferior to the reality, it appeared
that the paper coming from the building industry and
discounted abroad amounted to about 350,000,000 lire.
The threat, already acted upon here and there, of demanding immediate payment of this paper made the situation
appear very serious, since it would cause as an inevitable
consequence the failure of the building associations and
perhaps, too, that of the principal credit institutions
whose interests were now closely allied with them. And
as the disturbance of the public finances had had a large
share in provoking the impending crisis of the market of
Italian securities, this crisis would, in its turn, aggravate
the financial and monetary crisis. In order to ward off
such a great misfortune the Government intervened energetically with the banks of issue, and particularly with
the Banca Nazionale, asking it to come promptly to the
help of the building associations, in order to put them in
a position to meet the obligations assumed toward foreign banks and bankers. The discussions were long and




88

The

Banks

of

Issue

in

Italy

violent. The Banca Nazionale hesitated, and did not fail
to measure the possible danger it was about to incur; but
it finally acted on the high moral consideration of avoiding
a crisis which would make Italy appear a country in disgraceful bankruptcy. This consideration and the very
serious anxiety as to the consequences that would result
for the country led the Banca Nazionale to give extensive
aid to the building industry threatened with disaster.
This happened, too, because in the last analysis the conviction prevailed that everything would be straightened
out without loss. The faith in a prosperous future for the
capital of the Kingdom seemed to assure a favorable outcome for these banking and building subsidies at first considered as dangerous. And we must not forget that what
helped to overcome the resistance of the bank, and led it
to intervene, was the belief that it could save the amounts
which had already been involved in the first aid given to
the building industry. The most difficult thing in business is always knowing how to lose a small amount at the
proper time in order to avoid losing a larger sum later.
And that is exactly why those who are in need of help
always ask for a part of what they need to save their
situation, calculating that the rest will come later, because
a person who has given the first part will not wish to lose
it, and to save and secure it will give the rest as well.
Another thing, too, that argued in favor of the subsidies
was the desire to avoid the losses that would come upon
the bank, directly and indirectly, from the ruin of the
building and credit companies, all, as we have said, more
or less largely involved in the building enterprises of
Rome and other cities.




89

National

Monetary

Commission

It may be said, however, that there prevailed at this
moment an optimistic opinion concerning the outcome of
the operations in favor of the building associations; but
such an optimistic opinion was too much like the arguments with which one tries to justify a step which it is not
possible to retrace, or the necessity of meeting an obligation that is not approved of, but can not be put aside and
declined.
The very serious and not unjustified anxiety of this moment took away from the Government and the banks the
freedom of choice; it hindered the calm examination of
the situation and the exact estimate of the losses which,
in comparison with the benefits expected, would result
from their intervention.
In the report to the shareholders on the operations of
the year 1889, the general director of the Banca Nazionale
declared:
"Meanwhile we have been obliged to witness a greater
aggravation of the building crisis, in consequence of the
continued withdrawal of foreign capital which had liberally subsidized the speculation in building in more than
one of our cities and had stimulated its excesses; from
this, therefore, arose the banking crisis of Turin, the bad
effects of which reacted on other regions.
" And as if all this were not enough, we had the increasing distrust on the part of capital, encouraged by the corrupt passion for destruction that seizes everything and
everybody and grows strong and rejoices in the ruin and
disgrace which it creates around itself; distrust also encouraged by the frenzy of speculators who do not know
the bounds of rectitude and honesty, and who recognize




90

The

Banks

of

Issue

in

Italy

no check, not even the consideration of the serious harm
they are inflicting on the economy of the country.
"These in broad outlines are the conditions under
which business was done during the financial year of which
we must speak to you; the difficulties our institution had
to encounter during the year are connected with them.
This action, you will acknowledge, gentlemen, could not
be calm and normal.
" It was not possible to limit it to the ordinary subsidies
that a bank of issue distributes to merchants and manufacturers to aid in their development and expansion.
We have not neglected the discharge of this function, but
we have likewise been obliged to listen to the call of other
duties and to fulfill them. An institution like ours could
not be indifferent to such unusual events and misfortunes
as those of this past year. When credit is so violently
beset, as was the case especially in the second half year, private interests placed in jeopardy take such forms, threaten
to multiply in so many and such ways, that they assume
the character of high public interest, which claims protection by the energetic intervention of the Government and
the institutions to whom is intrusted, by the reason of their
own character and also for their own protection, the defense of the public credit both at home and abroad. And
so, gentlemen, when the danger of failure first threatened a
well-known credit establishment, which until recently had
enjoyed the greatest confidence, the Government, foreseeing the very disastrous consequences, widespread beyond
all measure, that would result from this failure, urged the
larger establishments to come to the aid of the situation.
The Banca Nazionale consented and, deciding that in the




91

National

Monetary

Commission

market of Turin were concentrated the interests of other
regions, helped it liberally. Then the bank judged advisable to stipulate an agreement with the Government enabling it t9 count on an increase of circulation of 50,000,000,
so that the help given in that special direction should
not render its available funds insufficient for ordinary
operations.
" The sum of 50,000,000 was only a part of that already
distributed and still remaining to be distributed in order
to avoid the catastrophes threatened in every direction,
but we did not ask for more, bearing in mind always that
an excessive increase of circulation brings evils outweighing the monetary advantages derived from it. On the
other hand, we calculated that the contraction of business
in general, which was already visible and promised to
increase in the near future, would justify us in devoting
to that purpose also a part of the ordinary disposable
funds. In the agreement which we have just outlined
the Government reserved for itself part of the profits on
operations made with the 50,000,000 excess of circulation
authorized at the rate of 1 per cent on the excess profits
that should result within the limits of 50,000,000.
" After this agreement we were able to arrange terms
with the Banca Tiberina, key of the situation, for the
well-known subsidy of 40,000,000, including in this sum
the amount for which we were already involved. The
operation was of necessity made and carried through by
discounting paper having the forms required by our
statutes. Further subsidies were afterwards granted in
the same manner to the Compagnia Fondiaria Italiana
and others.




92

The

Banks

of

Issue

in

Italy

"This large assistance given for the purpose of saving
the country from widespread and inevitable ruin, the
extent and consequences of which it was not and is not
possible to measure, received comments of various kinds;
but we do not deem it necessary to go into them deeply
with you. We will only say that, before and after, we
were more sensible to those who blamed us than to those
who praised. If we had decided not to yield there is
good reason to believe that the censures would have been
much more severe on the day when the Banca Nazionale,
on which everybody's eyes were fastened, allowed ruin
to pile upon ruin, showing for the first time an impassivity in contrast with its not inglorious past, and with
the aims which must always be present to the administration.
"We have used every means to protect your interests
from being compromised by the special operations which
were concluded, and we venture to believe that, within
a period the duration of which we can not up to the present moment foresee, these operations will fulfill our expectations and give a proper compensation to our efforts
and your rightful interests.''
In the very grave anxieties set forth with so much
efficiency the general director of the Banca Nazionale was
unwilling to take into account that the building crisis,
henceforth inevitable and on the point of breaking out
with great violence, was due to the excess of production
of a commodity which could not be sent to another market to be disposed of, but would be obliged to wait on
the very place of production for the purchaser who would
come only tardily through the natural but slow increase




93

National

Monetary

Commission

of population; that consequently capital would remain a
long time without interest and would diminish automatically. Even less did anyone think of studying the
number of vacant apartments and the annual increase of the population, in order to get at least an
approximate idea of the time that would elapse before
the houses would be inhabited and the capital involved
receive a return. Neither did they consider that, in any
case, investments such as those solicited, even if they had
been solidly and abundantly secured, were neither suitable
nor advisable for banks authorized to issue notes, for
these banks would thus tie up a large part of their available cash, with the certain reaction upon conditions of
circulation and credit in general.
The seriousness of the situation, the terror because
of the imminent peril, and the urgent need of relief made
imperative, seemingly, the intervention which the Government not only urged on, but also cooperated in; for,
although it was anxious about the already abnormal
conditions of the circulation of the Banca Nazionale,
it consented to arrange with it the agreement mentioned in the report of the general director, and, besides,
put at the disposal of the bank a sum of 15,000,000 lire
in silver to cover a like sum of bank notes, on condition
of having 40 per cent of the profits of the operations
the bank carried on with it. The plan for the State's
sharing in the profits of these extraordinary operations
is the proof of the prevailing optimism, spontaneous
or reflected. People talked and made arrangements
about profits, not foreseeing, even distantly, losses;
since the worst that was feared could happen to the banks




94

The

Banks

of

Issue

in

Italy

was to be obliged to wait too long for realizing on their
credit. What is more, the smaller banks all expressed
their resentment at being excluded from such a magnificent banquet, served up by that contract to the single,
privileged Banca Nazionale, and a chorus of many voices
united in upholding the complaints of these institutions.
This incident is recorded here because, in the presence
of the tardy, bitter censures against the Government and
the Banca Nazionale which arose after people had been
able to ascertain the futility of subsidizing the building
industry and the institutions that were interested in it,
and the gravity of the losses which the bank and the currency of the country suffered from it, it is well, for the
sake of historic accuracy, to state that the Government
was prompted, and even incited, by public opinion that
demanded the avoidance of the impending ruin.
It is enough to reread what was written in the newspapers of the time to get an exact idea of the status of
Italian public sentiment on this question. A few isolated
voices were raised then to give warning that bank notes
were not made for the use to which they had been put,
and that it was a grievous mistake to throw the good
money of the banks after the bad money of a wild speculation already condemned to fall beneath the weight of the
errors it had committed; but these voices were drowned
in the clamors of the crowd, and they were attributed to
Cassandras, predicting the ruin of the country, or to bear
operators who selfishly desired that ruin and were waiting
to speculate on it.
Whatever judgment may be passed now on the help
given at that time by the Italian banks, by direct inter39781 °—11




7

95

National

Monetary

Commission

vention, and that too with the participation of the Government, help which constituted, again, through the
consequences that grew out of it, one of the most noteworthy episodes in the history of Italian banking, it
must in all truth be acknowledged that the Government itself was moved by the praiseworthy intention
of avoiding a crisis that would have jarred to the foundations the whole financial and economic edifice of the
country, and that the banks which seconded it were
inspired by the same patriotic desire for the public good.




96

CHAPTER

VII.

CONDITIONS OF CURRENCY IN 1890—MUTUAL REDEMPTION
OF NOTES AMONG THE BANKS OF ISSUE—SCHEMES FOR
BANKING REFORM.
There is no d o u b t meanwhile t h a t as a result of t h e extraordinary operations concluded by t h e banks in favor
of t h e building industry, t h e conditions of t h e currency
were growing worse. On December 31, 1890 t h e notes
amounted t o 1,126,000,000 lire, while t h e metallic reserve
was 358,000,000 lire, with a diminution of 26,000,000 lire
in comparison with t h e end of 1889. The proportion
between t h e reserve and t h e notes in circulation had gone
down from year t o year from 34 per cent to 32 per cent, a
minimum never reached until then.
On t h e other hand, an amelioration was noted t h a t
year in t h e S t a t e finances and even in economic conditions in general. T h e budget had gone from a deficit of
230,000,000 lire in 1888 t o a surplus of 23,000,000 lire in
1889 a n d of 46,000,000 lire in 1890. The commercial
movement, which h a d reached t h e m a x i m u m in 1887 of
2,610,000,000 lire in t h e aggregate, including imports and
exports, h a d fallen in 1888 t o 2,066,000,000 lire rising again
t o 2,341,000,000 lire in 1889 and falling t o 2,214,000,000
lire in 1890. I t m a y be well t o add t h a t these differences
were due for t h e greater p a r t t o t h e vicissitudes of t h e
building industry, which swelled the total of imports in
1885 to 1,460,000,000 lire, to 1,458,000,000 lire in 1886,
and t o 1,605,000,000 lire in 1887, as a result of buying
abroad materials needed for building. In 1888 t h e imports fell from 1,605,000,000 lire to 1,174,000,000 lire.




97

National

Monetary Commission

But the keenest scrutinizers of the labyrinth of the
budget did not indulge in any vain illusions; they knew
very well that the surplus had been obtained in part by
disposing of treasury money and by various expedients
of the treastiry, while the increase of certain returns was
derived from new tortures imposed on the citizens whose
tax-paying power would soon be exhausted.
Indeed, the least hopeful forecasts were confirmed by
the facts in the following year in which reappeared a deficit
of 48,000,000 lire, and the commercial movement showed
in comparison with 1889 a l ° s s oi 212,000,000 lire; rentes
at Paris went down from 95.50 to 87 and exchange rose
from 100.65 to 103.80. The currency remained unchanged
in spite of the decrease of 100,000,000 lire in the discounts
of the banks, because the treasury, to provide for its needs,
had received from them 123,000,000 lire of statutory loans.
To meet the deficit ascertained in the State budget, the
minister of the treasury, Grimaldi, a clever and very fluent
talker, but without sound economic and financial education, had proposed a series of provisions suitable to assure
an equalization, among which was another bill on the
banks of issue which would have given the treasury an
added income of 4,000,000 lire.
At that point came the already mentioned downfall of
the ministry presided over by Francesco Crispi, which was
succeeded by the Rudini Ministry, whose minister of the
treasury was Signor Luzzatti. Being a profound analyst
and acute observer of the mysterious Isis of the budget,
possessed of a broad knowledge of economics, Signor
Luzzatti, who enjoyed deservedly a great and undisputed
authority in Parliament, seemed to be the man best fitted




98

The

Banks

of

Issue

in

Italy

to dominate the difficult situation. Therefore the belief
that he would be able to think out the plans for giving
a stable reorganization to finance and currency was fully
justified.
But at the end of June of this same year of 1891 there
came to an end not only the legal currency of bank notes,
which, prolonged by the law of April 7,1881 through 1883,
had necessarily, by the needs of the situation, been continued from year to year; but another thing came to an
end also—and this was the privilege granted to the
banks of issuing notes. But while on the one hand a
favorable occasion presented itself for taking up once for
all the weighty problem of banking reorganization, which
the failure of all the schemes presented through the determined opposition they had encountered had now caused
to be regarded in the light of one of those electrical
machines that are " dangerous to touch," on the other
hand, the distress of the times and the many duties with
which the new minister of the treasury was obliged to
occupy himself, made it impossible to apply anything but
temporary remedies. In fact, on May 28, 1891, Signor
Luzzatti presented to Parliament a bill to prolong the
privilege of issue of bank notes and their legal currency
to the end of December 31, 1892. The well-known disorders of the circulation, which exceeded by more than
170,000,000 lire the limit fixed by the law, demanded,
likewise, some precaution calculated at least to prevent it from being still further inflated. The new law
stipulated that the circulation of each bank should not
exceed the average reached in the year 1890, except when
it remained less than four times the paid-up capital, in




99

National

Mon etary

Commission

which case it could reach this limit. The tax on circulation was fixed at i .20 per cent besides the two-tenths—that
is, 1.44 per cent. For the excess beyond the legal limit, or
for the deficit of metallic reserve, which was to cover in the
proportion of one-third both the bank notes and sight
liabilities, the bank should pay a tax equal to double
the discount rate.
The law stipulated that, within six months of its promulgation, each bank should present to the minister of
agriculture, industry, and commerce a detailed statement
of the situation of discount operations of difficult and unready realization or overdue and unpaid, and of real estate
undertakings and credit of all kinds secured by mortgage
guaranty. The limit of six months was extended by the
committee of the Chamber to one year; but the ministry
did not consent to the modification, so that the shorter
limit of six months remained which the ministry had fixed,
evidently with the determination of knowing without delay
the situation of the banks of issue, in order to have standards to refer to in framing an organic law.
Each bank was to accept in payment the bank notes
of the others. The Government reserved the right
to establish within two months, after conferring with
directors of banks, the rules to regulate the mutual.redemption of the respective bank notes.
On the lump sum of 171,683,152.24 lire, which was the
maximum amount of the loans the banks were to make to
the treasury, including a loan extraordinary of 68,183,15 2.24
lire, the banks were to receive 2]/2 per cent interest and
pay the circulation tax of 1 per cent.




100

The

Banks

of

Issue

in

Italy

The regulations above mentioned, and especially the
one which obliged the banks to present within six months
a statement of the operations not paid on maturity or of
unready realization and such as were secured by mortgages,
were intended to check the activity of the banks and to
reveal their condition. This law, framed under pressing
necessity, was, however, the prelude to a more organic law
that the Government promised to present in the interval
between July i, 1891 and December 31, 1892, the term of
the prolongation of the privilege granted to the banks to
issue bank notes and of the legal currency of these notes,
as indeed the same ministers had declared in their report
on the bill.
In conformity with the promise made, the ministry
presented on April 1, 1892 an organic bill of which it
will be well to give an outline, because it showed how, in
spite of the well-known inferiority of the plurality of
banks, in spite of the proof of the grave losses it had
caused to Italy, it was not possible to reach the unity of
issue notwithstanding that, as it appeared through the
tendencies of the bill, the Government seemed to be in
principle favorable to it.
But before proceeding to the examination of the banking bill, it will be well to consider an episode which gave
rise later to bitter censure against the minister of the
treasury and the minister of agriculture, industry, and
commerce. As we have seen, an article of the act of
June 30, 1891, authorized these ministers to establish
within two months, by royal decree, the rules relating to
the mutual redemption of notes among the banks of
issue, after conferring with the various general directors.




IOI

National

Monetary

Commission

Now, it happened that at the expiration of the established
term the ministry announced the intention of publishing
the royal decree by which it was stipulated that the obligation of redemption of bank notes should be limited to the
total of the notes issued by the creditor bank possessed
by the debtor bank. The creditor bank, therefore, was
to take over any excess and employ it in its own operations ; all this in accordance with the established agreements.
The director general of the Banca Nazionale objected
that according to the agreements it had been stipulated
that the experiment was to be made for a sufficient time to
make it possible to see if, as he maintained, the proposed
method would give rise to inconveniences. But, since the
Banca Romana, supported by other banks insisted,
declaring again that the obligation of redemption of its
notes would reduce it to the condition of suspending
operations, the decree was published.
After the failure of the Banca Romana in 1893, w ^ h
the revelation of its very grave irregularities, bitter discussions aroused as to its relations with the Government.
Politicians and the press, in trying to place the responsibility, called to mind the decree of 1891 on the mutual
redemption of notes and reproved the ministers who had
complied with the urgent request of the Banca Romana,
whose bad situation they must have known. Those who
expressed this opinion had evidently forgotten that, more
than the ministers who made the proposal, the committee
of the Chamber, the faithful interpreter as it considered
and called itself of the opinion of the Chamber, had been
favorable to the lightening of the obligation of the mutual




102

The

Banks

of

Issue

in

Italy

redemption of notes. The spokesman of the committee of
the Chamber had complained that in the report on the
bill for the abolition of forced currency, similar relief had
been planned and promised in the matter of the mutual
redemption of notes, and said: " This promise still remains
unfulfilled, and the committee is distressed because the
Government has not seized the opportunity, in presenting
this bill, to propose frankly the solution of the problem.
Lacking this the committee itself would not have hesitated
to frame a definite resolution if the idea had not prevailed, shared also by the proposing ministers who had
come into its midst, that it would still be better to try a
solution based on an agreement among the banks/'
" I n every way the committee approves the standards
set forth in the legislative provisions to that effect proposed by the Government; and therefore it accepts article 4 of the ministerial act, proposing furthermore that the
royal decree shall be issued within two months from the
publication of the law, and this in order to assure attainment of the desired end, and to prevent further delays
which the past has given reason to fear."
Since the Banca Romana was relieved, first through the
Government's interposition and the considerateness of
the Banca Nazionale, then by laws and royal decree, of
the obligation of redeeming its notes, and since this relief
was the cause of its being able to violate the law anew
more freely and more recklessly, until it reduced itself to
a disastrous condition, the inquiry into the responsibility
on this most important point appears fully justified.
Now, from the words of the spokesman of the committee
quoted here, it is seen very clearly that the ministry had




103

National

M on et ary

Commission

not, in its somewhat hesitating procedure, entirely satisfied the desire of the committee and the Chamber; the
committee was distressed because the ministry had not
dared to solve the problem more quickly; to be more
specific, it wished to insert a modification, approved by
the Chamber, by which the Government was obliged to
present the royal decree within two months of the publication of the law. All this confirms, in an eloquent way,
all that we have said about the surrounding conditions
of the Italian Parliament with regard to the banking
problem in general and the relations among the various
banks of issue in particular. The solicitude of the Government for the minor banks, which has been pointed
out in connection with the bill presented in 1888, was
nothing but acquiescence in the sentiment prevailing, for
reasons and considerations of a regional nature, in the
Italian Parliament.
And, in particular, as for the accusation made against
Signor kuzzatti of not having opposed the publication
of the decree which effectively abolished the mutual
redemption of notes, when he certainly must have known
the ruinous conditions of the Banca Romana, it must be
stated that he was absolutely ignorant of those conditions. Nevertheless, Signor Luzzatti, not being perfectly tranquil about it, had intended to arrange for an
unexpected examination of the Banca Romana before
presenting the bill of 1891 and consenting to the publication of the decree on the mutual redemption of bank
notes; and he had mentioned this plan of his to the general
director of the Banca Nazionale and the general director




104

The

Banks

of

Issue

in

Italy

of the treasury, Signor Carlo Cantoni; these men, of
one accord and insistently, advised the minister against
making the inspection. Signor Grillo, supposed to be
such a bitter enemy of the Banca Romana and its governor, declared to Signor Luzzatti that it was his
firm conviction that the Banca Romana was in perfect
order; and judging its governor too shrewd to have
fallen again into past errors, concluded by advising the
minister against making a fruitless inspection which would
"raise an uproar in the camp" and disturb the market,
which was already getting out of control. Besides, it is
well to call to mind that, as it was ascertained in the year
1893 by the parliamentary committee of inquiry on the
banks of issue, the minister of agriculture, industry, and
commerce had also maintained that an unexpected examination of the Banca Romana would be neither useful nor
opportune.
In the meantime the Government had published the
decree that in execution of the law recorded June 30,
1891, fixed in the following figures the maximum amount
of notes the banks could keep in circulation at the ratio
of four times the paid-up capital for banks that have
shareholders, and of four times the free capital possessed
by the two banks at Naples and Sicily:
Banca
Banco
Banca
Banca
Banco
Banca

lire.
600, 000, 000
242, 160, 600
84, 299, 900
70, 019, 500
48, 000, 000
20, 000, 000

Nazionale nel Regno
di Napoli
Nazionale Tuscana
Romana
di Sicilia
Toscana di Credito




1,064, 480,000

105

National

Monetary

Commission

an excess of 308,750,000 lire beyond the amount granted
by the law of April 30, 1874, a n excess which thus became
legalized.
This situtation, however, being considered abnormal,
the Government, as we have seen, had decided upon
presenting an organic bill on the institutions of issue.
Meanwhile the articles of the law of June 30, 1891, by the
penalties to be applied in case of an excess of circulation,
and by the necessity of the metallic reserve of one-third
as a cover for the circulation, had helped slightly to
improve the situation.
From June 30,1891 to February 29,1892, the circulation
was diminished from 1,139,000,000 lire to 1,030,000,000
lire; the reserve was increased from 425,000,000 lire to
435,000,000 lire.
The bill for the regulation of the currency, presented
by the Government April 1, 1892, deserves to be examined
specially, as we have said, in the part which reveals its
intimate belief in the superiority of the unity of issue.
This end the Government did not, however, expect to
attain, because, as it declared in the learned report which
preceded it, it intended to l' insure more fully the observance of the articles of the law, to reenforce notably the
banking regulations, and to make up for the lack of
unity of direction of the institutions, not wishing to
organize a big institution on the ruins of these minor
ones as has been done elsewhere, in order not to offend
public interests, customs, and venerable traditions.''
The bill proposed the forming of an association between
the banks of issue which should serve to establish and
maintain constant relations among them, and in certain




106

The

Banks

of

Issue

in

Italy

matters, especially in fixing the discount rate, to give
a unity of direction to their action. To the association
was also intrusted, under the surveillance of the Government, whatever concerned the manufacture of bank
notes and their distribution among the banks, and likewise the treasury service of the State.
The bill contained various other wise provisions which
it is not necessary to mention, because, with the unlucky
fate that had always pursued the numerous bills for
Italian banking reform, this one also fell through with
the downfall of the Rudini Ministry, whose minister of
the treasury, as we have said, was Signor Luzzatti.
But, for the reason stated, it seemed useful to mention
the proposal relating to instituting the association,
because it represents almost a middle term between the
unity of issue, the value of which was henceforth recognized, and plurality, which " venerable customs and traditions made it impossible to abolish."




107

CHAPTER

VIII.

THE FAILURE OF THE BANCA ROMANA AND THE CRISIS OF

1893.
To the Rudini Ministry succeeded the ministry presided
over by Signor Giovanni Giolitti, whose minister of agriculture, industry, and commerce was Signor Pietro Lacava,
and of the treasury was Signor Bernardino Grimaldi, who
had already held the same office in preceding ministries.
These were the two ministers to whom, in conformity with
the law then in force, was entrusted the vigilance over the
banks of issue and whose concern it was to propose the
modifications of the banking law.
But before the ministry could reduce its studies to concrete terms and present its proposals to Parliament, public opinion began to show itself anxious and uneasy about
the situation of the banks of issue in general, and that
of the Banca Romana in particular. Having been freed
from all further check or restraint by the royal decree
of August 1, 1891, which absolved it from the obligation
of redeeming its notes, the Banca Romana, which was
already in a disastrous state, went headlong on the road
to ruin. Its circulation, which amounted to 72,000,000
lire in 1891, rose to 112,000,000 lire in 1892 and to 137,000,000 lire in January, 1893, g°i n g down to 129,000,000
lire on July 31 of that year. The bank, in order to maintain in circulation the notes which the public rejected, had
tried to open an office at Milan and branches in other
cities of upper Italy, but without any success. The notes
of the Banca Romana, which had not succeeded in pene-




108

The

Banks

of

Issue

in

Italy

trating to the rest of the Kingdom were flooding the
Roman Province.
The situation of that bank gave rise to discussion in
the Italian press, and abroad also a few cries of alarm
were uttered. It was supposed that Minister Grimaldi,
who was bound by ties of friendship to the governor of
the Banca Romana, would propose not to modify the
banking system, and to make this bank the concessions
that it was asking for, by increasing its capital and privilege of issue. It was then that someone advised Minister
Grimaldi to reject every proposal of this kind, and to
take steps, instead, for liquidating the Banca Romana
and merging it with another bank. The minister was
warned in a friendly way that if he intended to continue
the privilege of issue for a bank which was in a disastrous
financial and moral condition, the whole report of the
inspection made of the Banca Romana in 1889 would be
brought to the knowledge of the public. This report
Minister Miceli had not even communicated to the council
of ministers, before which he had confined himself to saying that he had provided for eliminating a few unimportant irregularities, as a result of the inspection of the
bank.
But Grimaldi, who had meantime determined to present a bill for continuing the existing state of things for
six years, not only paid no attention to the warning, but
continued, in sheer bravado, to the point of supporting the
governor of the Banca Romana in the ministerial council
and obtaining his nomination for senator. This was the
spark that started the conflagration. Maffeo Pantaleoni,
the illustrious economist who is an honor to Italy, and




109

National

Monetary

Commission

who had sent to Minister Grimaldi, by a common friend,
the warning mentioned above, could no longer restrain
himself in the face of what he considered a challenge.
Being in possession of a copy of the report on the inspection of the Banca Romana, he selected two deputies
of opposing parties in the Chamber, Signor Colajanni
from the Left and Signor Gavazzi from the Right, and,
advising them of the very damaging facts charged against
the Banca Romana, persuaded them to carry the question to the Chamber; this duty, in the interests of public credit and morality, they accepted willingly. The
impression produced in the Chamber by the revelations
of the two deputies was enormous; it was a distressing
impression because of its moral seriousness and alarming
because of the revelation of a most disastrous state of
things, which would cause serious injury to Italian
credit.
Signor Giolitti, president of the ministerial council, who
in the most stormy moments of his long political career
has fortunately been assisted and supported by a calm
and well-balanced mind, did not wish in the midst of the
furious outburst of political passions excited by the revelation of the sad state of the Banca Romana, to grant the
proposal of nominating a parliamentary committee of inquiry, and advised instead proceeding first of all and immediately to the nomination of an administrative committee for the purpose of requiring an inspection of all the
banks of issue, in order to find out their condition. This did
not succeed, however, in quieting the excitement; because
even if the announcement of the nomination of that committee was at once sufficient to satisfy the legitimate




no

The

Banks

of

Issue

in

Italy

desire for enlightenment of all the men who were working quietly for the public good, it was not enough for
the politicians, who had suddenly scented, in the sad
rottenness of the Banca Romana, a most excellent excuse
for giving free play to the cannibal instinct that distinguishes them from the rest of the human race. However that may be, it was quite impossible to prevent
the opposition from choosing the propitious occasion of
the very grievous disorder that reigned in Parliament to
try to bring about the downfall of the ministry.
Without entering now into the political side of the situation, it should be stated that the ministry, abandoning
the scheme for prolonging the existing state of things for
six years, suddenly set to work energetically, as the gravity and urgency of the situation demanded, to provide for
bestowing better regulations upon the banking system;
for this there was no need to await the final result of the
inspection of the institutions of issue. What was already
known was sufficient to give a clear, if not complete, idea
of the situation of the banks and the currency; in the
gravity of this were seen reflected all the effects of the
errors committed, and principally of that greatest error
of having allowed to subsist for so many years a hybrid
system of banking plurality in a country which, by its
peculiar conditions, needed more than any other the
valuable support and the valid, efficacious working of a
single strong and respected institution of issue.
The plurality of banks had,excited rivalry between the
institutions, and, in the midst of the struggle, they had
lost the sense of prudence and measure; instead of being
the supreme regulators of the circulation and credit, they
39781 0 —ii




8

in

National

Monetary

Commission

had become facile distributors of bank notes, encouraging
all sorts of irregular and immoderate undertakings. The
abuse of credit resulting from the conduct of the
Italian banks of issue had in fact promoted many undertakings of a speculative nature, without foundations,
and sometimes without honesty; it had piled up an edifice, which, superficially considered, might give the illusion
of solidity and prosperity, but which was doomed instead
to fall at the first touch, at the first breath of wind. The
bank note considered as capital had been devoted to all
kinds of uses, even those least adapted to its nature and
involving the greatest risk.
And yet, if we consider that no undertaking succeeds,
especially in our own time, unless it is moved and animated by the violent puffing of speculation; if we consider that even in countries more solidly and longer
organized, and more seasoned to economic struggles, the
same thing has happened that happened in Italy, it would
appear that, although deploring the moral disorders and
the great waste of economic energy, some sort of explanation ought to be found, which, if it does not justify
the work of all those who, from top to bottom, were the
cause of grave and lengthy banking crises, may at least
lessen their responsibility (leaving aside, of course, those
who were dishonest); for while the course pursued by these
men resulted in harm on the one hand, on the other hand
something good remains. There remains the building
renovation of the capital of the Kingdom; there remain
the magnificent works of the sanitation of Naples; there
remains the network of railroads, and the whole mass
of public works completed in a quarter of a century.




112

The

Banks

of

Issue

in

Italy

And there remains above all a notable inheritance of
experience which offers sufficient guaranty that Italy
will proceed from now on in the right path in all that
concerns the government regulation of banks of issue
and paper currency.
The situation of the banks had also made plain the
disadvantages resulting from the intervention of the
Government and politics in general in banking affairs,
even if this intervention might seem justified by praiseworthy intentions and the desire for the public good.
In this regard bitter were the criticisms directed against
the men in the Government who had interfered in
banking matters and against the administrations of
banks which had not resisted their pressure and had
consented to give subsidies, useless for the building
industry and injurious to the banks. The same thing
happened now that had happened at the time of the
abolition of forced currency. All those who in Parliament and the press had not only approved the subsidies,
but insistently demanded them, now became the most
violent accusers of the Government and the banks.
Nor was this change of opinion confined to those who
had neither discernment, ability, nor learning to express an intelligent opinion on the question, since it was
evident also in men who because of their education
and social and political position were rightly considered
capable of expressing thoughtful and weighty opinions.
An influential member of Parliament at the time of the
subsidizing of the building industry wrote: "The intervention of the Banca Nazionale was not only legitimate and praiseworthy, but right. This is the true




"3

Natio

n a I M on et ary

Cotnm is s ion

function of the .great institutions of issue—*to collect
and concentrate .their own resources in order to ibe able
to support credit in difficult -moments." JHe then
attacked bitterly the basis of the banking project of
the Government, because he saw in it the " continuation
of the baneful system of banking subsidies, which, beginning with the Esquiline undertaking and followed by
the Banea Tiberina, was the cause of Italy's (greatest
calamities."
Very rightly the general director of the Banea Nazionale in the report to the shareholders for the year
1893, the last year of the existence of the bank, could
assert in summing up the vicissitudes of the institution:
" It has often been said that the bank should have looked
on with indifference at the disasters that were piling
up around it, but I have the right to record that these
tardy reproofs came to us principally from the very
people who had most loudly requested or demanded
the aid and help of the bank."
Another severe lesson coming from the discovery of
the conditions of the Italian banks was the admonition
to consider that the first and strongest .guaranty of bank
notes in circulation is metallic money.




114

CHAPTER

IX.

EXAMINATION OF THE BANKING ACT OF AUGUST IO, 1893.

Given the three points stated above—that is, the disadvantages of the plurality of banks of issue, the intervention of the Government and politics in banking affairs,
and the necessity of large metallic reserves as a guaranty for paper currency—it would seem that the course
to be followed was clearly indicated by the examination
of the situation and the causes that had created it. The
logical solution of the banking problem, unsolved for
some twenty years, which was indicated and almost
demanded by experience and the situation, seemed to
consist necessarily in the organization of a single great
bank of issue, protected by precise legal enactment from
all political influence and provided with a large metallic reserve for the greater guaranty of the notes in
circulation.
With regard to the first point, the solution was forwarded by an agreement promptly arranged between the
Banca Nazionale nel Regno and the two Tuscan banks.
By this, leaving out the Banca Romana, the banks of
issue, organized under the form of a joint stock company,
were reduced from four to one. There remained the arranging for a fusion of the Bank of Naples and that of
Sicily, or for their transformation into local institutions of
agricultural or land credit, of which southern Italy was in
great need; but no attempt of this kind was possible. This
is certainly a point in the history of Italian banking that
will doubtless seem inexplicable to one who examines it




115

National

Monetary

Commission

at a distance in time, in and by itself, independently of
the surroundings and the conditions of the moment.
As we have seen from the brief historic note on the
origins of the two banks of Naples and Sicily, they were
considered institutions of southern Italy, for which the
population of the south cherished the kind of affection
that is inspired by national glory. To make an attack
upon the integrity of these two banks was to
offend the local sentiment of that population and likewise arouse against the ministry the violent opposition
of the Neapolitan and Sicilian deputies, united and firm
in demanding that the two banks be preserved with
absolute autonomy and complete independence. Among
the few who were an exception to the rule we should
record, by way of praise, Deputy Saporito, a Sicilian,
who in a speech to the electors had the courage to proclaim the necessity of creating in Italy a single great
bank of issue.
If we consider what were then the surrounding parliamentary conditions, agitated by the raging of violent
passions, and what must have been in consequence the
position of the ministry, it will be easy to understand
how the ministry could not even distantly hope to be able
to win the great battle in favor of a single bank, since it
would have been inexorably overthrown if it had even
expressed such an intention.
The Government, therefore, was obliged to limit itself
to proposing the ratification of the fusion of the three
banks, the Banca Nazionale nel Regno, the Banca Nazionale Toscana, and the Banca Toscana di Credito, and
the creation of the Bank of Italy; to continue the privi-




116

The

Banks

of

Issue

in

Italy

lege of issue for the banks of Naples and Sicily and erect
on this foundation the new legislative structure on the
currency.
Before proceeding to the examination of the articles
of the new law, we should state that very violent opposition was raised against the plan of the Government, in
so far as it tended to keep in operation the existing institutions, some merged, others autonomous. Deputy Sidney Sonnino, one of the most cultivated and influential
members of the Italian Parliament, now president of
the ministerial council, published a note in which, after
making a careful examination of the conditions of the three
banks which were to constitute the Bank of Italy, he
showed that this institution could not be organized on a
successful basis, and in concluding his study expressed the
opinion that the better plan would be to liquidate the
six banks of issue and create out of them a single entirely
new bank. Although the opinion of Signor Sonnino
on the situation, and especially on the conditions in
which the projected Bank of Italy would be placed, was
considered exceedingly gloomy, the facts were destined
to show that he had been, instead, too optimistic. Indeed, whereas he had calculated that the Bank of Italy,
provided it did not suffer other losses, would not be able
to give the shareholders a dividend of more than 4.50
per cent on the paid-up capital, the dividend was 15 lire
for the first year of 1894, 17 lire in 1895, and in various
succeeding years, until 1905, 18 lire, equal to about 2%
per cent. This is sufficient proof that the true situation
of the Italian banks of issue had not yet been grasped
in all its gravity, even by the keenest inquirers. How-




117

National

Monetary

Commission

ever, the calculation made by Signor Sonnino made a
great impression because it signified that the shares of the
Banca Nazionale, at 1,000 lire nominally, with 750 lire
paid up, which had been quoted at about 1,285 lire,
would have to decline to about 1,000 lire: Even this
calculation was extravagantly optimistic, since the shares
of the new Bank of Italy from a nominal value of 1,000
lire with 700 lire paid up, declined in December, 1894, to
a minimum quotation of 750 lire.
Two very distinct programmes meanwhile were under
discussion. First, the plan supported by Signor Sonnino,
in which few others acquiesced, consisting as we have
seen, in the liquidation of all the existing banks and the
building from the foundations of a new banking regime
with a unified system; second, the plan to which adhered
both the partisans of a unified system and the partisans
of a system of plurality, which took definite shape in the
preservation of the three banks, subjected to a rigid discipline which would make possible the gradual liquidation
of the operations not in liquid form or otherwise not suitable for banks authorized to issue notes.
If the proscribed programme of Signor Sonnino did
not, with few exceptions, have the support of the partisans of unity, it was because it seemed extremely dangerous to decree the liquidation of the six banks of issue
during the very serious crisis from which Italy was suffering. It seemed to the majority that the better plan would
be to proceed cautiously and by degrees, beginning by
restoring a little order to the great banking chaos, and by
providing, through rigid and severe rules, to prepare the
way for the gradual reform of the situation, and prevent




118

The

Banks

of

Issue

in

Italy

the repetition of past errors. Besides, the programme of
Signor Sonnino could not in any case have been approved,
because of the very decided opposition of the southern
deputies who, for the reasons stated, wished the two
banks to be continued.
It was for this reason that in spite of the lively opposition manifested in the long and not always calm discussion,
the president of the ministerial council, Signor Giolitti,
gave proof of extraordinary energy and great competency,
and succeeded in getting the new banking law passed.
This law at the very difficult moment in which it
was discussed and ratified, because of the violent dissension that raged in the Chamber, and because of the
abnormal conditions of the banks, could neither be made
perfect nor final.
It was necessarily a transitional law, of a kind to make
possible the understanding of the programme for bringing
about the gradual reform of the currency and the banks
of issue, a plan which had been judged more practically
attainable.
The new law, promulgated under the date of August 10,
1893, authorized the fusion of the Banca Nazionale nel
Regno with the Banca Nazionale Toscana and the Banca
Toscana di Credito, and the creation of a new bank which
assumed the title of the *' Bank of Italy.y' The capital was
placed at the sum of 300,000,000 lire, divided into 300,000
registered shares of 1,000 lire each, with payment of 700
lire. The paid-up capital was thus raised from 176,000,000
to 210,000,000, and the shares were distributed among the
shareholders of the three banks as follows: To the shareholders of the Banca Nazionale 214,289 shares in exchange




119

National

Monetary

Commission

for the old ones; to the same shareholders, at option,
48,718 shares; to the shareholders of the Banca Nazionale
Toscana 30,000 shares; to the shareholders of the Banca
Toscana di Credito 8,000 shares.
The maximum amount of notes that the Bank of
Italy and the two banks of Naples and Sicily could
keep in circulation was fixed, for four years, at the
sum of 1,097,000,000 lire, divided as follows:
Lire.
800, 000, 000
242, 000, 000
55, 000, 000

Bank of Italy
Bank of Naples
Bank of Sicily

After four years the circulation was to be gradually
diminished by a graded yearly quota, so that when
fourteen years had elapsed after the promulgation of the
law it should be reduced to the following proportions:
Lire.
630,000, 000
190,000, 000
44, 000, 000

Bank of Italy
Bank of Naples
Bank of Sicily

The total circulation thus amounted to 864,000,000 lire,
corresponding, for the Bank of Italy exactly, and for the
two banks of Naples and Sicily approximately, to three
times the paid-up capital of the one and the free capital
possessed by the others.
The reduction of the maximum of circulation was
justified by the gradual liquidation of operations nonliquid in form or not allowed under the new law, a liquidation which would automatically reduce the mass of
bank notes in circulation. The banks which, at the end
of fourteen years, should not possess a capital corresponding to a third part of the circulation allowed them would
be obliged within three months to reduce this circulation




120

The

Banks

of

Issue

in

Italy

by the amount in excess of three times their paid up
or free capital. The circulation taken away from one
bank was to be granted to such others as should possess
or pay up the capital corresponding to and available for
the triple issue. The auditing of the paid up or free
capital was intrusted to a commission composed of seven
members, two to be chosen from the Senate, two from the
Chamber, and three to be nominated by royal decree.
The above limits did not include bank notes that the
banks could issue, without restriction as to amount, provided they were entirely secured by legal metallic money
or by gold bars deposited in the coffers, and the notes
issued for ordinary or extraordinary loans to the State
treasury.
The holders of notes had the right to demand their
redemption in metallic money in the cities of Rome,
Bari, Bologna, Cagliari, Catania, Florence, Genoa, Leghorn, Messina, Naples, Palermo, Turin, Verona, and
Venice. This article, which was already included in the
preceding laws, could not, however, be enforced, since
enforcing it would have led to the exhaustion and exportation of the metallic reserves of the banks of issue, because
of the dearness of exchange.
The new law confirmed for five years the legal currency
of the notes of the three banks in the provinces in which
they had their own establishments and representatives.
It is to be stated that the legal currency was destined
to be successively confirmed from year to year and is
still in force. During the legal currency the discount
rate was to be the same for the three banks and could
not be changed without the permission of the Government.




121

National

Monetary

Commission

They could, however, discount at a rate i per cent below
the official rate paper presented by people's banks : and
institutions of discoimt and agricultural credit, organized
to serve as intermediaries between the small trade and the
banks of issue, and for the discount of warrants of general
warehousing and consignments free of taxation (franchi depositi). The discount at special rates was to be limited—
Lire.

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

70, 000, 000
21, 000, 000
4, 500, 000

Each bank was obliged to accept through the operations
of any kind the notes of the other banks in the cities in
which they had legal currency.
The rules for the mutual redemption of notes among
the banks were to be established by royal decree and
presented to Parliament within the year 1893, to be converted into a law.
The metallic reserve was to be increased within a year
from 33 per cent to 40 per cent of the notes in circulation, 33 per cent of which was to be composed of Italian
specie, of foreign coin admitted to legal currency in the
Kingdom, and in bullion in the ratio of at least threequarters in gold and one-quarter partly in silver coin;
and as for the remaining 7 per cent, it could also be composed of foreign bills of exchange on firms of the first
order, recognized as such by the Minister of the treasury.
A like reserve of 40 per cent was established as a guaranty of the debt of the banks represented by promissory
notes, checks, bank transfers, and other paper payable
at sight, and without exception all paper payafcle to
bearer.




122

The

Banks

of

Issue

in

Italy

The article that authorized the banks to include in the
metallic reserve foreign bills of exchange was successively
amplified as for the quantity and character of the obligations so as to permit adding thereto treasury bonds of
foreign states with a normal metallic circulation, and also
certificates of deposits of money with foreign banks and
bankers who were correspondents of the Italian treasury.
The above provision was framed for two different reasons:
The one, of utility to the banks of issue, a part of whose
reserve it rendered fruitful, with the advantage of the
reconstruction of their free capital; the other, of monetary utility, since it allowed the banks to have a part
of their funds in foreign countries, which might serve as a
powerful protection in case of monetary disturbances and
high rates of exchange. From this point of view, Italy
introduced into its banking legislation a provision already
tried to advantage in other countries, such as Germany,
Austria-Hungary, Russia, Switzerland, Holland, Belgium,
and Spain.
By article 9 of the law it was stipulated that the manufacture of bank notes should take place, in conformity
with special regulations, under the cooperation of the
State and the banks.
The tax on circulation was fixed at i per cent of the
average total of bank notes, after deducting the metallic
reserve.
The banks would pay, therefore, beside the tax of i per
cent, an extraordinary tax corresponding to double the
discount rate on the excess of circulation and the deficit
of metallic reserve.




123

National

Mon

etary

Commission

Article 12 was particularly interesting; in this were indicated the operations that the banks could carry on, that
is, discount of bills of exchange having not more than four
months to run and bearing the signatures of two or more
persons known to be solvent; of treasury bonds; of warrants issued by societies of general warehousing and consignments free of taxation (franchi depositi); of coupons
of securities admitted in loan operations. Loans, for not
more than six months, on government securities or those
guaranteed by the State; on mortgage certificates issued
by realty credit institutions; on gold bonds issued or
guaranteed by foreign states; on gold and silver coin, national or foreign, at legal currency, and gold bars; on silk
raw and in organzine or woven, and on silver bars estimated at not more than two-thirds of their value; on certificates of warehousing and consignments free of taxation
(franchi depositi); on orders in merchandise or sulphur,
not over two-thirds of the value; on certificates of consignments of spirits and cognac, placed in the warehouses
legally established, for not more than half the value.
Cash purchases and sales on account of the banks
themselves of foreign drafts and checks and foreign bills
of exchange of not more than three months' currency,
payable in gold, bearing two or more signatures known to
be solvent. These operations could not, during the legal
currency, without the permission of the minister of the
treasury, exceed the limit necessary for refurnishing the
metallic reserve or satisfying the needs of the treasury.
The banks were to liquidate in two years securities, certificates, and goods held in payment of or as guaranty for
their credit, and within three years the mortgages or real
estate obtained for overdue credits.




124

The

Banks

of

Issue

in

Italy

The banks could hold a quota of Italian government
stock for a value not exceeding:
Lire.

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

70, 000, 000
21, 000, 000
4, 000, 000

The banks of issue could receive deposits on interestbearing accounts current; in case, however, the total of
accounts current exceeded:
Lire.

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

130, 000, 000
40, 000, 000
12, ooo, 000

the bank was obliged to reduce the circulation by threequarters of the excess. The interest on accounts current
could not exceed half the discount rate during the first
three years and one-third in the following years.
Realty credit operations were forbidden. The banks
could continue winding up the operations which had been
proposed until July 1, 1893. All uncovered operations in
accounts current were forbidden.
The Bank of Naples was authorized to continue its
pawn operations. The banks were allowed to assume the
office of provincial receivers of the direct taxes.
The Bank of Italy, the Bank of Naples, and the Bank
of Sicily were obliged to liquidate in ten years, at the rate
of one-fifth every two years, operations other than those
permitted by the new law. Obligations settled with the
statutory reserve could be considered liquidated. In case of
not completing in each two years the liquidation of a fifth
of the operations, the Bank of Italy would have to ask the
stockholders, within the limits of the nominal capital, for
the payment of the sum needed to complete the obligatory
liquidation. The Banks of Naples and of Sicily were to




125

National

Monetary

Commission

devote all profits to the completion of the obligatory
liquidation. For banks which had not conformed to the
above provisions of the law the privilege of issuing bank
notes would be suspended for a sum four times the
amount needed to complete the obligatory liquidation.
The banks which had carried on operations forbidden by
the law would be liable for a tax equal to three times the
discount rate, calculated on the whole duration of the
operations.
To prevent the banks from being induced by their
own initiative or by pressure from the Government
to carry on operations of special character having in
their form only the appearance of legality, £he general
directors and the councils of the three banks were not
allowed to conclude discount operations, and it was stipu.
lated that no bill of exchange should be admitted to
discount without the sanction of the discount commission of the establishment or branch to which it had been
tendered. At the end of each fiscal year the amount
of the bills overdue and unpaid was to be charged to
loss; that of the bills subsequently recovered was to be
added to the profits of the year in which the bills were
paid.
The law granted the reduction of three-quarters of the
registration fee of deeds of sale or purchase of real estate,
and releases of credits made for the liquidation of operations not admitted by the said law.
The law authorized, moreover, the banks of issue to
intrust, in whole or in part, the liquidation of operations
not in liquid form to an institution which should be
created with a capital of no less than 40,000,000 lire, to




126

The

Banks

of

Issue

in

Italy

which the Government could make special concessions.
But the banks did not need to avail themselves of this
faculty.
There followed in the law the stipulations concerning
the organization of the government inspection of the
banks and severe penalties for fraudulent infractions
of the law; next came provisions as to the liquidation
of the Banca Romana, which had been assumed by
the State, and by it delegated to the Bank of Italy, which
was to pay on account of the liquidation 2,000,000 lire
a year during ten years.
An article of the law stipulated that members of Parliament could not fill any office, with or without remuneration, in the banks of issue.
As we have seen, the new law corresponded in its
general outline to the programme that had been chosen
as the one that appeared best adapted to the conditions
of the moment, consisting in assuring the gradual liquidation of the burdensome inheritance left by the stormy
vicissitudes of the past to the Italian banks, and in providing at the same time for surrounding the further action
of the said banks with timely precautions, subjecting
them to salutary checks rendered efficacious by severe
penalties so as to avoid new mistakes and disorders.
.With the exception of a few details of small importance arising from the different character of the three
banks, the law subjected them all to the same regulations,
and the severe regulation of the government supervision
insured that the action of the three banks in observing
the said law should be uniform, as if there were in fact
one single bank of issue.
3978I°—II




9

127

National

Monetary

Commission

And while in this way were obviated the dangers of the
plurality of banks, of which Italy had made a very dismal
trial, or at least the disadvantages of the system were
diminished, provision was made by increasing the
metallic reserve for removing the other cause, already
stated, of the inferiority of the Italian paper currency.
As for the meddling of politics in the management of
the banks of issue, it was supposed to be provided for by
the law stipulating that senators and deputies could not
hold office in the banks.
This provision, which was rightly said to savor of Jacobinical distrust, was not included in the bill presented by
the Government and was added during the discussion in
the Chamber. It was not, however, in any way justified,
since it had not appeared, and did not appear later from
the parliamentary inquiry that there had been in Parliament members of the council of banks of issue, who, abusing their function as senators and deputies, had harmed
the banks or had in any way whatsoever in their double
capacity as politicians and as administrators of the
banks of issue committed dishonest acts such as would
justify the incompatibility established. The effect of that
provision of the law was, meanwhile, to deprive the banks
of men of great authority and unquestioned uprightness,
such as Senator Tittoni, afterwards foreign minister;
Senators Balestra, Lancia di Brolo, Ridolfi, Chiaramonte Bordonaro, and Deputy Giuseppe Pavoncelli,
later minister of public works. Besides, this law forbade
and still forbids the King to confer the dignity of senator
on men who in the administration of the banks of issue
render themselves worthy of public honor.




128

CHAPTER

X.

T H E PARLIAMENTARY COMMITTEE O F INQUIRY—AGGRAVATION OF T H E FINANCIAL AND ECONOMIC S I T U A T I O N —
FINANCIAL

AND

BANKING

PROVISIONS

OF

MINISTER

SONNINO AND T H E I R E F F E C T .

The law of 1893, although not perfectly successful, necessarily, perhaps, because of the condition of things and the
general anxiety, was none the less of a kind to quiet uneasiness and to cause a revival of confiden9e in a gradual
amelioration of the circulation and the banks, but it did
not succeed in accomplishing the desired result. Political
passions, instead of calming down, grew more inflamed,
while at the same time the results of the inspection of
banks showed that their situation was much more
serious than had been supposed in the beginning. The
Government now recognized the necessity of allowing the
nomination of a parliamentary committee of inquiry,
charged with ascertaining any incorrect relations of politicians and the public departments with the banks of
issue. Although the committee of inquiry was composed
of honorable and authoritative men, it did not succeed
in entirely escaping the influences of the surrounding
parliamentary agitation and was not always conducted
with calm impartiality. Thus, when it ascertained the
loan mentioned above of 8,000,000 lire made by the Banca
Nazionale to the Banca Romana, the committee bitterly
reproached the Banca Nazionale, declaring it did not seem
credible that it should have been ignorant of the condi-




129

National

Monetary

Commission

tions of the Banca Romana, as if insinuating that, although
knowing them, it had consented to help hide them. To
this insinuation, which had suggested to Deputy Cavallotti
*aying before the government the before-mentioned inquiry,
the general director of the Banca Nazionale replied scornfully and haughtily in a letter published in the newspapers.
The presentation to Parliament of the report of the
committee of inquiry unloosed a furious tempest, in the
presence of which the ministry resigned. It may well
be suspected that the ministry was violently attacked in
some quarters also for having dared to probe to the
bottom the affairs of the Banca Romana, to the point
of allowing the legal authorities to proceed to the arrest
of the governor and the head cashier of the bank and
other supposed accomplices. Even if the attacks against
the president of the council were apparently justified
by an unfriendly judgment expressed in his regard by
the committee of inquiry, in reality the united opposition which could not in good faith ignore his personal
integrity, had found itself agreed upon the aim of ruining
the ministry. And that was neither the first nor the last
time in which a ministerial crisis was produced in Italy as
the result of an event for which the ministry was not at all
responsible.
The inordinate clamor which political passion had
raised over the fall of the Banca Romana and the excessive
exaggeration of accusations and charges seemed to justify
the suspicion that all the political, economical, and banking
life of Italy was corrupt. Naturally all this could not fail
to produce harmful effects on the public credit. And in
truth the period between the middle of 1893 and the middle




130

The

Banks

of

Issue

in

Italy

of 1894 m a y be considered in every respect one of t h e
darkest a n d most distressing through which new Italy has
passed. Government rentes went down on t h e Paris
m a r k e t from a m a x i m u m quotation of 93.50 to a minimum
of 72, due likewise to the distinct resumption of hostilities
b y t h e French m a r k e t as a result of the painful conflict
started a t Aigues Mortes between Italian and French
workmen, which helped to aggravate the situation in Italy.
As a necessary consequence of the fall in rentes, exchange
went u p from t h e rate of 102.30, the m a x i m u m point
touched in 1892, to t h e m a x i m u m of 115.95, a r a t e never
reached before t h a t time.
B u t whether as a coincidence or reflex of the banking
crisis, not only did t h e conditions of credit in general and
national economy appear grave, b u t also those of t h e
public finances. The budget which had closed with a
surplus of more t h a n 9,000,000 lire for t h e financial year
1892-1893, now showed a great deficit, without taking
into account t h e increase of debts incurred under various
forms and t h e expedients which were resorted to in
order to provide for t h e ever increasing needs of t h e
treasury.
The Giolitti Ministry was succeeded by a new Crispi
Ministry, in which Signor Sidney Sonnino accepted
t h e treasury portfolio. His first effort was devoted t o
making an accurate, profound analysis of t h e actual conditions of finance in relation not only to t h e account of
revenues and ordinary expenditures, b u t also to the
situation of t h e treasury and t h e amounts extraordinary
for building railroads and m a n y other needs of t h e State.
The result of his conscientious study was t h e discovery of




131

National

Monetary

Commission

a situation which the minister did not hesitate to declare
very serious, which he summed up: In a deficit of
155,000,000 in the ordinary expenditures; in a treasury
debt of 565,000,000, which needed systematizing; in the
abnormal conditions of circulation; in the uneasiness
that, as a result of an economic derangement felt by everyone, was spreading over the country. And, making a
brief analysis of the causes that had led Italy into the sad
condition ascertained, he did not hesitate to declare that
these causes must be found in the waste made of money
amounting to millions and billions, borrowed without due
forethought and used in unproductive or unnecessary expenditures. He bitterly reproved Parliament for deluding itself and the public during fifteen years as to the
real condition of the public finances, and, in conclusion,
made a lively appeal for energetic and virile action to
save the country from the financial and economic ruin
that threatened it.
The stubborn optimists tried to reprove Signor Sonnino
for depicting the situation in such very dark colors; but
they did not succeed in lessening the great impression
produced by the courageous exposal made by the minister of the actual conditions of the country and finance.
Signor Sonnino was, therefore, as will be seen later, as
energetic in the cure of the trouble and fortunate in its
issue as he was merciless in its diagnosis.
But even before he had arranged in concrete form the
provisions aiming at the systematizing of the treasury and
restoring finance, he was obliged to intervene speedily
in order to avoid the aggravation of the monetary and
economic situation of the country.




132

The

Banks

of

Issue

in

Italy

The considerable decline of the Italian rentes in Paris
provoked a grave crisis on the Italian stock exchanges, a
crisis that overwhelmed the two biggest credit institutions then existing, the Credito Mobiliare Italiano and
the Banca Generale, one with a paid-up capital of
60,000,000 lire, the other with a paid-up capital of
30,000,000 lire. The failure of these institutions was the
chief cause of the aggravation of the situation. Securities
continued to decline sharply in a way never before witnessed, and the panic seized even depositors, who crowded
to the doors of the banks and savings institutions in order
to obtain immediate payment of deposits. The situation then appeared terrifying and threatening. The
minister of the treasury, Signor Sonnino, and the minister of agriculture, industry, and commerce, Signor
Boselli, to save the country from the most serious consequences, were ready to provide, through royal decree
of the date of January 23, 1894, for placing the banks of
issue in a condition to come to the aid of the very grave
situation. The royal decree authorized the banks to
issue notes beyond the normal limits up to the amount:
Lire.

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

90, 000, 000
28, 000, 000
7, 000, 000

on condition of the payment of a tax equal to two-thirds
of the discount rate, instead of double the discount rate as
stipulated in the law of August 10, 1893. The notes were
to have the required metallic reserve. The same royal
decree suspended the provision of the law by which the
banks were obliged to reduce the circulation by threequarters of the amount of the deposits in accounts current,




133

National

Monetary

Commission

in addition to the sums indicated. So, twenty-three days
after that banking law had gone into force, it was necessary
to provide for modifying it temporarily. The effect of the
royal decree was salutary, because it succeeded in stopping
the run of depositors on the banks and savings institutions by the influence of that phenomenon of a psychological nature which is always evident in similar cases.
Viewed as a whole, the very grave banking crisis that
Italy suffered from at that time may be considered as the
inevitable result of the failure to keep in mind the rules
that must always guide the management of the banks of
issue and the institutions of credit. The banks of issue,
for reasons already stated, were impelled and forced to
disregard the principles that must govern the activity
of banks authorized to issue paper money; the institutions of credit, because of a mistaken estimate of the
economic conditions of the country, forgot that institutions that operate in large part with the money of depositors must use the greatest care to avoid tying up the
capital, which may be, as it was then, as it had been
before in other countries, as it will doubtless be in the
future, a cause of economic crises and of inevitable ruin
for these institutions. In the face of the painful results
of experience discussions then arose in Italy that were to
arise in 1907 in Germany and Italy with regard to the
perils that may be incurred by institutions of credit which
employ too large a part of the depositors' money in direct
participation in industrial undertakings and in affairs of
a speculative nature.
The Banca Generale and the Credito Mobiliare went
into a forced liquidation, the result of which showed that




134

The

Banks

of

Issue

in

Italy

the first would have been strong enough to live on a basis
of its own if it had not been overturned by the fury of
the blast that made it impossible to examine its situation
calmly and shut out the aid that could have been afforded
by suitable and relatively limited means.
The Government then showed the desire to know with
greater exactness the conditions of the banks of issue in
order to see whether it was possible for them to conform
to the stipulations of the law of 1893, &nd a ministerial
decree of February 15 arranged for a complete new inspection of these banks in order to ascertain the solidity
of their financial situation and the amount of operations
not in conformity with the law, likewise the situation of
the cash and circulation.
The work of the ministry in the matter of finance and
circulation entered then upon a period of truly feverish
activity. By royal decree of February 21, 1894, converted into a law July 22, 1894, the treasury was authorized to increase the circulation of state notes to 600,000,000
lire, comprising in that sum 200,000,000 lire which the
treasury was to furnish the banks of issue in exchange
for the same amount in gold that they had been forced
to set aside at the disposal of the treasury, to be distributed as follows:
Lire.

Bank of Italy
Bank of Naples
Bank of Sicily

145,000,000
45,000, 000
10, 000, 000

The state notes were as a matter of fact declared at
forced currency, since their exchange into metallic money
was suspended and there had passed into full possession
and disposal of the treasury certificates of public debt for




135

National

Monetary

Commission

the amount of 367,750,700 lire, which were deposited as
a guaranty for the said notes. In such a way the state
notes which had been thus created originally in 1881 for
the sum of 340,000,000 lire, with a guaranty of 234,000,000
lire in rentes, and had risen by June 30, 1893, to 367,000,000; these notes which had been intended to be withdrawn and cancelled annually by the surplus of the budget
were increased to 600,000,000 lire and deprived of all
guaranty. The t amount of 600,000,000 in state bank
notes, authorized by the law of June 22, 1894, was never
reached, for, including 558,000,000 lire in cash orders of
1 and 2 lire, created by royal decree August 4, 1893, and
February 21, 1894, and 45,000,000 lire issued for the Bank
of Naples, as will be shown presently, they reached a
maximum total of 556,000,000 lire on June 30, 1898, and
were reduced on June 30, 1899 to 434,500,000 lire, including 23,000,000 lire left over from the 45,000,000 lire issued
on the account of the Bank of Naples, with a guaranty of
gold specie to the amount of 176,700,000 lire.
The existence in circulation of state notes has often
given rise to discussions in Italy, and it has been proposed
several times to withdraw these notes. And, indeed, it
does seem strange that the Government, which has rightly
been concerned with the absolute necessity of reforming
the banking currency, not only has never given a thought
to reforming its own currency, but has, instead, made it
worse. However, granting that the suppression of state
notes would be useful to the country from the monetary
point of view, it should be remembered, nevertheless,
that most of the state notes issued do not burden the
country, but are very willingly accepted for their great




136

The

Banks

of

Issue

in

Italy

convenience in small transactions and are preferred to
5-lire silver pieces.
In fact, a great part of the state notes are sought for by
Italian emigrants abroad, who prefer them to checks for
sending small sums of money to Italy. And although in
actual figures they show an increase from 1881 until to-day,
yet, considered in relation to the increase of population
and trade, and in relation to the total amount of the currency, they show, instead, a decrease. In 1889 having
redeemed in specie nearly the whole of the association
notes debited to the State, there were in circulation
1,116,000,000 lire in notes of the banks, compared to
334,000,000 lire state notes of 5, 10, and 25 lire. The proportion between the state notes and those of the banks
was about 30 per cent, while at the end of 1908 the state
notes amounted to 468,000,000 lire and represented 25 per
cent of the total notes in circulation. Although there
are in circulation silver coins for 1 and 2 lire and, in
smaller proportions, 5-lire pieces, yet the fractional currency is shown to be rather deficient, especially in moments of greater need, determined by the silk market and
the harvest of the principal agricultural products.
It must be understood, in any case, that the forced currency of the state notes was a provision of an absolutely
extraordinary nature, made at a moment when it was
important to regulate a most difficult and threatening
situation, in which the conditions of the foreign market
with respect to Italy and even more those of the home
market, would not have permitted making an appeal to
credit. It can not be said, indeed, that Signor Sonnino
lacked the courage to act with energy, since, after taking




137

National

Monetary

Commission

exact account of the gravity of the situation, he considered all the means fitted to cope with it, not even stopping at the unpopular ones of increasing the existing taxes,
and imposing new taxes, and the one, judged dangerous
to Italian credit, of increasing from 13.20 per cent to 20
per cent the tax on personal property in government
rentes.
This is not the place to examine all the provisions
proposed by Signor Sonnino and approved by Parliament in order to relieve the conditions of the public
finances and put new life into the depressed economic
situation of the country; let it suffice to note here that
the desired effect was quickly reached, since the budget
of 1894-95 closed with a surplus of about half a million;
Italian rentes in spite of the increase of the tax advanced
on the Paris market to 91, and commercial activity, which
had suffered a falling off, began to increase again.
We must return, however, to the banking provisions
that Signor Sonnino, in agreement with Minister Boselli,
proposed at the same time with the financial ones. A
royal decree, carrying out the law of August 10, 1893,
provided for regulating the method of the mutual redemption of bank notes among the banks of issue, so as to render
it efficacious. The decree stipulated that the redemption
should be effected without limitation and that on the
sums remaining to the debit of a bank, interest should
be reckoned in favor of the creditor institution.
The law of July 22, 1894 modified the provisions made
under pressing necessity in January of the same year,
relating to the excess of circulation of bank notes over




138

The

Banks

of

Issue

in

Italy

the normal limits, establishing that the institutions could
issue, respectively:
Lire.

Bank of Italy
Bank of Naples
Bank of Sicily

. 45, 000, 000
14, 000, 000
3, 500, 000

on condition of paying a tax equal to two-thirds of the
discount rate, and could further exceed the circulation
by a like amount, on condition of paying a tax equal to
the discount rate. The above-mentioned excess of circulation, however, was to be guaranteed by the prescribed
metallic reserve in the ratio of 40 per cent.
As for the obligation to reduce the circulation by threequarters of the excess of deposits in accounts current
beyond the sums indicated, it was stipulated that this
reduction should be limited to one-third.
The amount of statutory loans that the banks of issue
were obliged to make the Government was fixed at
125,000,000 lire, distributed as follows:
Lire.

Bank of Italy
Bank of Naples
Bank of Sicily

90,000, 000
28, 000, 000
7, 000, 000

After settling that import duties were to be paid
in metallic money, this law stipulated that for
those not exceeding 200 lire state notes or bank notes
should be accepted, with the addition of exchange. It
further established that the banks of issue should provide
certificates useful for the payment of import duties, by
receiving a like amount in bank and state notes, without
limitation as to amount, with the addition of exchange.
In a special account current the banks were to be debited
with the sums deposited for the issue of certificates and




139

National

Monetary

Commission

credited with sums paid abroad on account of the treasury.
The differences resulting in profit or loss from this service
were to be evenly divided between the treasury and the
banks.
As long as the redemption of state notes in specie remained suspended, bank notes could be changed into state
notes or into specie with the addition of exchange.
By royal decree of October 12, 1894, the government
supervision of banks of issue, and the liquidation of the
Banca Romana, undertaken first by both the minister of
agriculture, industry, and commerce and the minister of
the treasury, was intrusted exclusively to the latter.
Having provided by this and other provisions of minor
note for regulating the various urgent questions concerning the currency and the treasury, Minister Sonnino made
the banking law of August 10, 1893, the subject of careful
study, in relation to the situation of the banks, which
was henceforth more clearly defined because of the new
inspection that had been applied to these banks. Operations that were not in a liquid form or not allowed by the
new law were found on February 20, 1894, to amount
to 638,366,685 lire—that is to say:
Lire.

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

449, 420, 000
, 169, 613, 316
19, 333, 369

However, more than half of the banking currency was
represented by operations of difficult or tardy liquidation,
or not suitable for banks of issue; operations among
which noteworthy losses were concealed. Now that he
was more directly informed of the actual facts, Signor
Sonnino, minister of the treasury, who had returned




140

The

Banks

of

Issue

in

Italy

to the ideas expressed at the moment of the failure of
the Banca Romana, and had even rejected proposals that
were made to him by foreign capitalists for the creation
of a new bank of issue, could not neglect giving his attention to the conditions revealed in the Bank of Italy, and
stipulated with it an agreement dated October 30, 1894,
of which the principal points were as follows:
The assuming on the part of the Bank of Italy at its
own entire risk and peril of the liquidation of the Banca
Romana, relieving the State of whatever losses might
result beyond the sums to be paid by the Bank of Italy
at the rate of 2,000,000 lire a year.
The bank itself engaged to deduct from net earnings
and to set aside 4,000,000 lire in the year 1894, 5,000,000
lire in 1895, and 6,000,000 lire in 1896 and the following
years, until the end of 1903. These sums were to be
invested in State securities or securities guaranteed by
the State, to be used, together with the relative compound interest, for securing within ten years the liquidation of operations not realized on or not in conformity to
the law, and to compensate for losses resulting from the
liquidation of the Banca Romana over and above the
annual payment of 2,000,000 lire.
The agreement, evidently anticipating provisions that
Minister Sonnino already had in mind, which were as a
matter of fact afterwards proposed and carried out, stipulated that if the time fixed at ten years for the liquidation
of operations not in a liquid form or forbidden by the
law should be prolonged, and consequently the two-year
periods extended, the bank should continue for the longer
time granted the setting aside of 6,000,000 lire of its




141

National

Monetary

Commission

profits. The Bank of Italy was obliged to continue the
deduction of profits for the increase of the ordinary reserve
and could not distribute to shareholders a dividend greater
than 40 lire, being obliged to deposit in the reserve everything in excess of this amount.
The Bank of Italy agreed to ask the stockholders for a
payment of 100 lire a share and to deduct a corresponding sum of 30,000,000 lire from the valuation of its own
capital, which was thus reduced to 270,000,000 lire nominal capital, divided into 300,000 shares of 900 lire each,
nominally, with 700 lire paid up; that is to say, with a
paid-up capital of 210,000,000 lire. The 30,000,000 lire
paid by the stockholders and not computed in the increase
of paid-up capital was destined to cancel a like sum of
overdue and unpaid operations included in the operations
of difficult or tardy liquidation.
The Bank of Italy assumed the treasury service of the
state in all the provinces of the Kingdom from February
1, 1895, until December 31, 1912. It was to receive payments of amounts on account of the state and the various
departments connected with it, and was to exact payments
in favor of creditors of both. In guaranty for this service
the bank was to furnish an initial surety of 50,000,000 lire
in state securities, or securities guaranteed by the state, to
be increased to 90,000,000 lire within six years.
The amount of statutory loans to be made by the bank to
the treasury was increased from 90,000,000 to 100,000,000
lire. The state left with the bank a permanent cash fund
of 30,000,000 lire solely for the needs of the ordinary treasury service, except for the necessary provision for extraordinary payments. When the cash fund rose to more than




142

The

Banks

of

Issue

in

Italy

40,000,000 lire, the bank was to pay the state a net interest of 1.50 per cent; when, on the other hand, it fell
below 10,000,000 lire, the state was to pay the bank a
like interest. The cash fund, however, was always to be
brought up to a total of 30,000,000 lire in the course of
every ten days, so that on the evening of the 10th, the
20th, and the last day of the month (dates on which the
bank statements were to be published) the fund should
amount to 30,000,000 lire.
In the agreement it was stipulated that during the legal
currency, and as long as the Bank of Italy carried on the
treasury service of the state, it could not ask the Bank of
Naples and the Bank of Sicily for the redemption of their
notes which had entered its coffers until a like amount of
the outstanding notes of the bank, at the end of ten days,
should be in the coffers of the two banks. This stipulation,
by which was weakened anew the principle of the obligation of mutual redemption of notes among the banks, was
justified by the consideration that in the course of the
treasury service the Bank of Italy would collect, especially
in southern Italy, a great quantity of the notes of the two
banks which they would have difficulty in redeeming.
On this point it may be objected that the cash transactions of the treasury being accounted separately from
those of the bank and being controlled by the officers delegated by the treasury, the anticipated inconvenience might have been avoided by excluding from
redemption such notes of the two banks as had entered
into the bank through treasury operations. These could
have been spent by the Bank of Italy in the operations
themselves or in those of the bank, leaving the principle of
the mutual redemption of notes in full force for the re39781 0 —11




10

143

National

Monetary

Commission

maining notes. It must be stated, however, that no inconvenience has been felt as a result of this provision, since
the relations among the three banks, even in regard to the
redemption of notes, have been perfectly correct, and their
circulation has not suffered from the above-mentioned
stipulation.
This agreement was approved by royal decree of December 10, 1894, which was converted into a law August 9,
1895. Although the agreement laid fresh burdens upon
the Bank of Italy, such as the liquidation, at its own risk,
of the Banca Romana and all the expense of the treasury
service, it produced, nevertheless, a good impression,
because notwithstanding the difficulties, now well known,
in which the bank was involved, the Government by
intrusting to it the treasury service showed that it had the
greatest confidence in the solidity of its framework,
whereas the payment by the shareholders of 30,000,000
lire assigned to cancel losses, and the obligation of the
annual setting aside of profits facilitated the gradual
building up of the capital of the bank and the improvement of its circulation.
In the law that ratified the agreement between the
Government and the Bank of Italy other provisions were
made concerning the banks of issue, among which was the
increase of the amounts they were permitted to invest in
rentes: Bank of Italy, from 70,000,000 to 75,000,000 lire;
Bank of Naples, from 21,000,000 to 30,000,000 lire; Bank
of Sicily, from 4,000,000 to 8,000,000 lire.
The amount of deposits in accounts current beyond
which the circulation was to be reduced, in the ratio of




144

The

Banks

of

Issue

in

Italy

one-third, was increased: For the Bank of Naples, from
40,000,000 to 50,000,000 lire; for the Bank of Sicily, from
12,000,000 t o 15,000,000 lire.

The Government was authorized to establish by royal
decree the conditions under which the banks could discount bills at a rate inferior to normal. This provision expressed in a general way was defined by royal
decree of October 25, 1895, which stipulated that the banks
of issue, independently of the faculty of discounting at a
rate of 1 per cent below normal the paper of the people's
banks and other intermediary institutions, should be
allowed also to discount at a rate below normal, bills of
not more than three months' currency, presented and
guaranteed by banking and commercial firms of the first
order. This faculty was subject to the condition of keeping the circulation within the normal limit. The minimum
rate of discount was to be fixed every three months by the
decree of the minister of the treasury and could not go
below 3K pe r cent.
This provision which added another distinction itl the
rate of discount of Italian banks has seemed an Italian
novelty and has been discussed and criticized in various
ways as a proof of a lack of unified standards and action in
the delicate instrument of the rate of discount. It will be
timely, therefore, to make clear, first of all, that it is not
in the least a question of an Italian novelty, since other
foreign banks of issue, including the Imperial Bank of
Germany and the Bank of England, are in the habit of discounting or buying (a difference in form which does not
change the substance) bills of exchange at a rate different
from the normal or official one. In what particularly




145

National

Monetary

Commission

concerns Italy it must be remembered that the variation
in the value of money from region to region is more noticeable than in other countries; hence the official rate of 5
per cent, which represents an average price of money in the
greater part of southern Italy, a region less fully provided
with available capital, proves in normal times high in
central Italy and even higher in northern Italy. Besides,
in Italy as in other countries, there may be in one single
province, and even in one single city, a difference in the
value of the bills of exchange tendered and worthy of
being admitted to discount, a difference which justifies
a diversity in treatment.
But tl\e provisions mentioned above with regard to the
rate of discount were in a special way justified at the
time when they were decided on by the conditions of the
discount operations of the banks of issue, since it would
not have been reasonable to treat in the same way clients
who presented real commercial paper, payable on maturity, and those to whom it was necessary to grant delays and renewals for the payment of their debts.
Another important modification of the law of August
10, 1893, was made by the law of August 8, 1895, with
regard to the time assigned the banks for the liquidation
of operations not in liquid form or contrary to the law,
which was increased from ten to fifteen years. In consequence it remained established that in each three years
the banks would have to liquidate a fifth of the operations; and it was correspondingly stipulated that the extraordinary inspection of these banks should be made
every three years.




146

The

Banks

of

Issue

in

Italy

This important and substantial modification of the law
of August 10, 1893, was made advisable by the necessity
of not placing the banks of issue in a condition of manifest inferiority in comparison with the market, which
might be able to dictate its own conditions to the banks,
profiting by the peremptory necessity they were under of
liquidating an enormous mass of intricate operations not
in conformity to the law. With regard particularly to
the liquidation of operations where it was necessary to
sell the real property that stood as guaranty, the period
of ten years seemed too short, especially as the real estate
market still remained inactive and did not attract capitalists desirous of getting a suitable return for their money,
which could not be had from houses, as they were still
more plentiful than necessary.
And it was also considered that in offering the market
a great quantity of real estate the conditions of real property, already depressed, would be still more aggravated,
causing by reflex a disorder of the public economy, especially in the capital of the Kingdom and in other cities in
which the building crisis had assumed a somewhat serious
character.
It was necessary, therefore, to give a longer time to
allow the banks to free themselves gradually from real
estate, without yielding to the exaggerated, usurious demands of the capitalists, who wanted to buy for half price,
or even less. And it was greatly to the credit of Signor
Sonnino, a long-time partisan of the energetic and violent
cure of the banking evil from which the country was suffering, that he recognized, in the face of the true situation




147

National

Monetary

Commission

and its inseparable exigencies, the advisability of a gradual
remedy, which ended, as we shall see, by giving unhopedfor results.
By the same law of August 8, 1895, were granted various diminutions of fees for registration of deeds in buying
and selling real estate, conveyances of mortgage loans, and
other operations of liquidation, for the purpose of facilitating realization on the intricate operations of the banks;
and it was stipulated besides, to facilitate the liquidation
of the realty credit branches of the banks and to straighten
out the relations between the two.
In consequence of the substantial changes made in the
law of August 10, 1893, the statutes of the banks of Italy,
Naples, and Sicily were also modified.




148

CHAPTER

XI.

THE MILITARY DISASTER I N AFRICA AND ITS C O N S E Q U E N C E S —
THE R U D I N l M I N I S T R Y — N E W BANKING ACT PROPOSED BY
MINISTER UJZZATTI.

The military disaster of Adowa, in which the Italian
forces were wiped out after being surrounded and vanquished by the whole Abyssinian army, was the occasion
on March i, 1896, of the downfall of the Crispi Ministry,
which was succeeded by a new Rudini Ministry, whose
minister of the treasury was Signor Colombo. The latter recognized at the very outset the urgent necessity of
a loan to meet the expenses of the African war, a loan
which was issued for 132,000,000 lire. Meanwhile the
African disaster arrested the improvement that the work
of Minister Sonnino had brought about in the financial and
economic situation of Italy. Italian rentes declined at
Paris from a maximum quotation of 97.33 to a minimum
of 86.25 and exchange went up from 104.50 to 112.62.
This turn for the worse made clear once more that the
exchange rate, especially in debtor countries with abnormal
finances, does not depend simply upon the conditions of
the paper currency. In fact, the currency, by the gradual
liquidation of heavy operations, was continually decreasing in quantity and growing better in quality; the currency was also growing better by the increase of the
metallic reserve which amounted in 1896 to 47 per cent
of the notes against 32 per cent in 1893 and exerted a
favorable influence on exchange which had gone down
from 116 to 104. In spite of this, a military incident




149

National

Monetary

Commission

entirely foreign to the conditions of the banks and the circulation was sufficient to make exchange go up again to
112.62, through the decline of Italian rentes abroad and
their return to Italy.
Meanwhile a grave dissension which had broken out in
the Rudini Ministry with regard to military expenditures
occasioned the resignation of the minister of the treasury,
Colombo, and others. Signor Luzzatti returned then to
the direction of the treasury and took up afresh the examination of the problem of the currency and the banks,
in whose situation various points were gradually being
cleared up that had not been carefully observed in the
official inspection of these institutions.
In regard especially to the Bank of Naples, the situation
had proved so grave and threatening, Minister Luzzatti was
obliged to declare, as to require urgent extraordinary provisions.
Signor Luzzatti was also led to resume the examination of the banking problem by the consideration of the
grave responsibility assumed by the State in the matter
of the paper currency on which he had conferred legal
currency, thus obliging the citizens to accept the notes of
the banks. The case of the Banca Romana was too recent
and too serious for this problem not to demand profound
consideration and the suggestion of provisions directed
toward guarding both the public interest and that of
the State.
But besides saving the Bank of Naples from imminent
ruin and assuring the guaranty of the bank notes, the minister of the treasury aimed at making possible a more




150

The

Banks

of

Issue

in

Italy

speedy liquidation of old operations not realized on or contrary to the law.
Guided by these standards and keeping in view the purposes mentioned above, the minister of the treasury presented resolutions which because of urgency were issued
by royal decree, and afterwards approved in a provisional
way by the law of January 17, 1897, and definitely sanctioned by the law of March 3, 1898, by which were modified and adapted several of the articles contained in the
royal decrees and in the law of provisional application.
Passing over the articles in detail, several of which it was
not considered necessary to put into effect, it will be helpful to examine the more important ones which caused
a noticeable modification of the regime established by
the preceding laws.
To make sure of the full guaranty of notes the law provided that the banks of issue should put aside, subject to
the inspection and control of the ministry of the treasury,
a metallic reserve, comprising in this the part employed
in discounts of foreign bills of exchange and foreign treasury bonds, and in foreign credits for the minimum amount,
irreducible, of 300,000,000 lire for the Bank of Italy,
90,500,000 lire for the Bank of Naples, and 21,000,000
lire for the Bank of Sicily.
The metallic reserve could not be diminished even in
case it should happen, as a result of the reduction of the
circulation, that it represented more than 40 per cent of
the circulation, and was to rest as guaranty for a corresponding amount of notes. For the part of circulation not
covered by the aforesaid reserves, the holders of notes had




*5*

National

Monetary

Commission

a claim on the other gold and silver specie belonging to the
banks, having deducted their part to be left as a guaranty
for sight liabilities to the amount of 40 per cent; on Italian
treasury bonds or other Italian state securities or securities guaranteed by the state, including for the Bank of
Italy, the sums set aside for the liquidation of the Banca
Romana; on foreign bills of exchange not included in the
discounts available for the metallic reserve; on loans on
collateral; on domestic liquid discounts. For the Bank of
Naples were included also the state securities comprised
in the metallic reserve, of which we shall speak later, and
temporarily the amount of the credit of the bank to its
own credit foncier administration. For the further protection of holders of bank notes the banks were forbidden
to engage in granting sureties.
As a result of this provision, there were tied up
411,500,000 lire of metallic reserve, or its equivalent,
representing 48 per cent of the minimum total of
864,000,000 lire, the amount to which the banking currency was required gradually to decrease, according to the
law. At the same time the law was abrogated with regard to the tying up of 200,000,000 lire of metallic reserve,
in exchange for which the State could issue an equal amount
of its own notes. The maximum total of these notes was
limited to 600,000,000 lire, and the total remained fixed at
125,000,000 lire of loans that the Bank of Italy and the
Bank of Sicily were to make the treasury, 115,000,000 and
10,000,000 lire, respectively, the Bank of Naples being
excluded from the necessity of making loans to the
treasury.




152

The

Banks

of

Issue

in

Italy

With regard to the provisions intended to hasten the
liquidation of operations not in liquid form or not in
conformity to the law, it was further stipulated that the
gradual diminution of the normal circulation guaranteed
by the reserve of 40 per cent should be anticipated, so that
the Bank of Italy, which was to reduce it by 34,000,000 lire
in 1897, should reach the minimum limit of 630,000,000
lire in 1905 instead of 1908; the Bank of Naples would
reach that of 190,000,000 lire in 1906 and the Bank of
Sicily that of 44,000,000 lire in the same year.
To facilitate and hasten the liquidation of old operations, Signor Luzzatti, although leaving unchanged the
provisions of the preceding law in as far as they set forth
the obligation of the banks concerning the length of
time in which the said liquidation was to be accomplished,
evolved a plan based on the idea of the intervention of the
State in favor of such banks as should give more active
and successful attention to attaining the desired end.
And since among the operations to be liquidated there
were several guaranteed also by public securities not
admitted by law, he proposed that these operations
should be considered liquidated whenever the bank had
sold the securities and invested the proceeds in state
securities or securities guaranteed by the State.
For the other operations to be liquidated, provision
was made to compensate such banks as had succeeded at given times in liquidating certain sums beyond
the required amount, by giving them the privilege of
investing in treasury notes up to a stated limit, or employing abroad a part of the metallic reserve in addition
to the amount permitted by the preexisting law, the pro-




153

National

Monetary

Commission

portion being increased from 7 per cent to 11 per cent; or
in case the minister of the treasury should not think best,
for considerations of a monetary nature, to allow further
employment of the metallic reserve, the banks were
rewarded by a discount up to a fixed amount of the
tax on circulation; and finally, by being allowed a gradual
reduction of the said tax on circulation from 1 lira to
50, 25, and 10 centesimi per cent.
Beginning with the year in which the tax was reduced
to this last rate, the State was to share the profits of the
banks of issue, at the ratio of one-third of the profits
between 5 and 6 per cent on the paid-up capital, for
the Bank of Italy, and the free capital and ordinary
statutory reserve for the Bank of Naples and the Bank
of Sicily, and one-half of the profits in excess of 6 per cent
for the three banks.
Other provisions granted for a longer period the reduction of taxes and supertaxes on conveyances of property,
purchases and sales real estate, transfers of credits and
conveyances at the banks of issue of the real estate
adjudged to their respective credit foncier departments.
These provisions, intended to facilitate and hasten the
liquidation of the burdensome inheritance of the past,
were, like the others contained in the preceding laws, inspired by a lofty sentiment of justice, inasmuch as the
Government wished to acknowledge by them that the
State had had its share of responsibility in the banking
ruin. The fact is that this very banking ruin saved the
country, at a most difficult moment, even greater disasters.




154

The

Banks

of

Issue

in

Italy

But in order to make easier the attainment of the ends
at which the Government was aiming, it was needful to
provide again to regulate the relations of the banks of
issue with their respective realty credit branches in liquidation, clearly separating the two administrations. It has
already been seen that the credit of the realty branch
of the Bank of Italy amounted to more than 49,000,000
lire; and we have briefly outlined the provisions taken
for the systematization of this account current and the
satisfactory results obtained. We should add here that
the Bank of Naples and the Bank of Sicily had, respectively, accounts of 46,000,000 lire and of 2,500,000 lire
against their realty credit branches. There were in all
about 98,000,000 lire of credit foncier deficits in liquidation which were burdening the institutions of issue and
the circulation, and for which it was necessary to provide to
prevent the situation from getting worse in this particular
respect.
As for the Bank of Italy, it was agreed that it should
deduct 30,000,000 lire from the valuation of its own
capital, reducing it to 240,000,000 lire nominal with
180,000,000 lire paid up; and that, having closed the
account current by the transfer to the bank of property and
securities belonging to its realty credit branch, the bank
could make loans to it on State securities or on securities
guaranteed by the State at an interest not lower than 3.50
per cent. The faculty was given to the credit foncier to
maintain a constant circulation of realty bonds to the
maximum amount of 220,000,000 lire, with the creation of
new issues of bonds exclusively on the real estate holdings




155

National

Monetary

Commission

of the bank; the bank in turn could obtain loans on its
property also from other credit foncier institutions.
The surplus of the credit foncier was to be maintained
in the constant ratio of one-tenth of the effective circulation of the realty bonds. The bank could liquidate
on account of the credit foncier the excess of the surplus
beyond the tenth of the total realty bonds outstanding. But the bank never availed itself of this power and
left the fund invariably at the sum of 30,000,000 lire,
which at the end of 1908 exceeded by about 19,000,000
lire the amount required by the ratio of 10 per cent of
the realty bonds in circulation, which amounted to
111,081,500 lire.
Besides the ordinary surplus prescribed by the law, the
credit foncier of the bank was obliged to deduct from
the annual profits 300,000 lire to constitute, together with
the interest accrued, an extraordinary surplus to be in
vested in State securities or securities guaranteed by the
State. By the law of July 7, 1905, concerning provisions
in favor of borrowers of the credit foncier of the former
Banca Nazionale and the Bank of Sicily, the requirement
of keeping the above surplus, which was recognized as
unnecessary, was removed.
And since the Bank of Italy, along with the obligations
imposed by the law, also had the rights that came to it
from the agreement established in the treaty with the
Government on October 30, 1894, which had put upon it
the burden of the liquidation of the Banca Romana, a
new agreement between the Government and the bank
was needed to modify the provisions then in force, also
because among the new provisions there was, as we have




156

The

Banks

of

Issue

in

Italy

seen, the reduction of the capital, for which was needed
the approval of the meeting of the shareholders. The
provisions as a whole were, however, granted in an agreement made November 28 of the year 1896, which was
approved by the law of March 3, 1898, and ratified, as to
the matter of the reduction of capital, by the shareholders'
meeting held March 28, 1899, in which the statutes of the
bank were accordingly modified.
For the Bank of Sicily provisions were made almost
analogous to those for the Bank of Italy, aiming at closing
the account current with its realty credit branch. To
this effect it was stipulated that 2,000,000 lire should
be deducted from the ordinary reserve of the bank and
charged to loss by unrealizable real estate operations.
The situation that presented itself in the matter of the
Bank of Naples was more difficult, considering the gravity
of the condition of its realty credit branch, which was a
serious menace to the bank, itself already in a sufficiently
precarious condition. The Government, anxious as to
the consequences that would follow the failure of this
ancient institution, especially in southern Italy, decided
to take exceptional provisions, and to cause the State to
intervene directly under the form of suretyship and fiscal
reliefs.
With regard to the credit foncier it was in fact stipulated that its certificates, which bore interest at the rate
of 5 per cent gross, should be withdrawn and replaced
by others bearing 3.50 per cent net of any taxation.
The State guaranteed the payment of interest on the
certificates and their amortizement. The debt represented by the realty bonds outstanding would be




157

s

National

Monetary

Commission

amortized in fifty years, through a constant annual payment, including the interest at the rate of 3.50 per cent.
The realty bonds were to be cancelled according to
the conditions established beforehand, except for the facilities granted by the prolongation of the terms, in conformity to the law. The bonds of the credit foncier
should be accepted in payment of loans at a value to be
determined every six months, on the basis of the average
price for the preceding six months in the principal stock
exchanges of the country, increased by 50 lire. This was
to avoid artificial speculation in prices on the part of borrowers. If the average value ascertained should be over
450 lire, the bonds would be accepted at par. The excess resulting between the payments made by borrowers
in reduction of the capital debt of the loan, and the quota
of amortization included in the constant annuity to be
used for cancelling the bonds in fifty years, was to be
invested, up to the time of total cancelling of the bonds,
in State securities or securities guaranteed by the State,
and set aside in a special fund destined for the payment of
the interest and reimbursing such bonds as still remained
in circulation after the cancellation of the corresponding
operations.
In the law we are now examining, additional provisions
were made regarding the closing of the account current
of the bank of Naples with its credit foncier and the reimbursing of the credit of the bank through the conveyance
of 5,000,000 lire worth of real estate or mortgages, and by
payment to the bank on the part of the credit foncier of
the total of the personal property tax on the interest of
the realty bonds and the tax on the circulation of these




158

The

Banks

of

Issue

in

Italy

bonds which were made good by the State in favor of the
bank. The sums paid over to the bank were to be invested in state securities or securities guaranteed by the
State to form, with the accrued interest, a fund to serve as
guaranty of the credit of the bank to its own credit foncier.
For the remainder stipulations were made similar to the
ones established for the Bank of Italy and the Bank of
Sicily to facilitate the loans to be made to the credit foncier departments.
But the bank of Naples itself needed special, urgent
provisions directed to reconstruct, within not too long a
time, its free capital. To this end it was stipulated that
the Bank of Naples should invest a sum of 45,000,000 lire
of its metallic reserve in state securities or securities guaranteed by the State; but to avoid the alienation of the
metal it was arranged that the said sum should be deposited in the coffers of the state treasury, which should
become owner of it, and pay, in exchange a like sum to
the bank in state notes, that the bank should invest in
state securities or securities guaranteed by the State.
However, in order not to lessen the guaranty of the holders of bank notes the state securities were converted into
registered certificates with a lien in their favor. The interest on the state securities was to be used, from half
year to half year, in restocking the metallic reserve with
gold specie, through a gradual restitution of notes to the
treasury, in order to redeem and withdraw a corresponding
sum in metallic money.
The operation, begun in 1897, for the entire sum of
45,000,000 lire was reduced on June 30, 1909, to the sum
of 23,277,555 lire, with which the Bank of Naples had
397810—11




11

159

National

Monet

ary

Commission

obtained, as a result of the above law, a reconstruction
of capital amounting to 21,722,445 lire.
Meanwhile the Government, in order to assure the
exact, efficacious application of the exceptional provisions
made in favor of the bank of Naples named as its general
director Signor Nicola Miraglia, who was then deputy to
Parliament, and general director to the ministry of agriculture, industry, and commerce; a man of broad culture
and great energy, who entirely fulfilled the expectations
of the Government.




160

CHAPTER

XII.

DISORDERS OF 1898—THE COMMERCIAL AGREEMENT WITH
FRANCE—EXCESS OF SPECULATION—NEW IDEAS IN THE
MANAGEMENT

OF THE BANK OF ITALY—NOTEWORTHY

IMPROVEMENT IN THE FINANCIAL SITUATION.

The series of provisions intended to facilitate the reconstruction of the capital of the Italian banks of issue
and to reform the currency by the liquidation of old
operations not easily realized on produced an excellent
impression, but it could not give immediate results, partly
because in the year 1898 there appeared insurrectional
movements in various parts of Italy, particularly at Milan
and Apulia. These movements reacted injuriously on
the financial and economic conditions of the country.
Italian rentes, which had risen gradually again in Paris
from the minimum quotation of 78, to which they had
fallen in 1896 as a result of the military disaster in Africa,
to the maximum quotation of 96.65, fell again to 87.45,
and exchange which in 1897 had reached the minimum
rate of 104.35 rose to 109.60.
The significant features of the situation at that period
bring clearly into evidence the damage that may be
caused a country by political agitations and excessive
speculation. The latter, in fact, after a brief period of
inactivity following the decline in prices which came in




161

National

Monetary

Commission

1897, as a result of the disaster at Adowa, and in the beginning of 1898 because of insurrectional movements,
seemed to gain fresh vigor and set to work with the intention of making a prosperous campaign to advance
prices, being encouraged in a particular way by the commercial agreement with France obtained by the Rudini
ministry. This agreement produced an excellent impression in the country, not only because it revived trade,
to the advantage of both countries and especially Italy,
making due allowance for Italy's condition of inferiority
to France, but also because it cancelled an ugly page of
ill feeling and misunderstanding between the two sister
nations that other pages, glorious and fraternal, had
inscribed together on the battlefield.
Meanwhile, however, the Rudini ministry, weakened
by events that took place in the country and vigorously
attacked by the constitutional opposition which had found
an allied opponent in the extreme left, enraged as it was
by the violently energetic measures with which the ministry had conquered the revolt and restored order, handed
in its resignation without even waiting for a vote of the
Chamber.
The excessive impetus given to affairs of a speculative
nature caused great harm, thus retarding the benefits
of the commercial Franco-Italian agreement, which
became then very evident in the field of industry.
The commercial movement of Italy, which had been
represented in the year 1897 by a sum of 2,383,000,000 lire,
exports and imports together, rose to 2,617,000,000 lire




162

The

Banks

of

Issue

tn

Italy

in 1898 and to 2,938,000,000 lire in 1899. The excessive
activity of speculation is clearly shown by the following
variations in the prices of the principal securities:
1898.

Banca d'ltalia
Banca Commerciale
Credito Italiano
Ferrovie Meridionali a
Ferrovie Mediterranee &
Acciaierie Terni c
Raffineria Lig. Lomb. d
Hdison Co
a Southern railroads.
& Mediterranean railroads.

1899.

Difference.

782

1, 084

4-

650

826

4-

176

508

717

4-

209

4-

77

712

789

512

302

613

419

1,815

320

486

+ 1.396
4166

39o

450

4-

60

c Terni Steel Works.
d Ligurian and Lombardian refinery

With regard to the currency it is to be said that the
progressive improvement which had been started by legislative provisions not only suffered a check, but even
showed a backward movement. The many needs created
by greater activity, united to those of speculation, made
an increase in the paper of the banks, loans and discounts
together, from 369,000,000 lire in 1897 to 538,000,000 lire
in 1889.
The increase from 50,000,000 lire to 116,000,000 lire
in loan operations clearly indicates the intervention of
the speculative factor.
Corresponding to the increase of operations, the circulation advanced from 1,086,000,000 lire to 1,180,000,000
lire, while the metallic reserve to cover the notes fell off
22,000,000 lire, declining from 538,000,000 lire to 516,000,000 lire so that the proportion between the reserve
and the notes went down from 49 per cent to 43 per cent.




163

National

Monetary

Commission

In Parliament and the press a lively debate was started
on the condition of the market and the inefficacious
action of the banks of issue in the face of it, to say nothing of the encouragement speculation had received from
the promptness with which these institutions had furnished it superabundant aid. The Government intervened in the question, and having subjected the paper of
the Bank of Italy to an examination, expressed the opinion that certain operations carried on by it under the
form of discount of bills not having a commercial origin
and guaranteed by securities were not in accordance
with the law and requested that all such operations be
eliminated.
The bank provided, therefore, for liquidating the contested operations or for transferring them into others,
which should answer in substance and form to the requirements of the law. The loans of the three institutions fell
in 1900 from 116,000,000 to 71,000,000 lire. The events
of this period showed that rigid and severe provisions by
law, statute, or regulation are not always enough to give
a sound direction to the institutions of issue.
In the year 1900 the general director of the Bank of
Italy, Signor Giuseppe Marchiori, died. In 1894 he had
succeeded the general director of the Banca Nazionale in
the direction of the new Bank of Italy, to which he had
rendered useful service. By unanimous consent of the
superior council, approved by the Government, Prof.
Bonaldo Stringher, a deputy to Parliament and undersecretary of State at the treasury, was elected general
director.




164

The

Banks

of

Issue

in

Italy

Since a change of method then took place in the government of the Bank of Italy, it seems a fitting moment
to examine the conditions of this bank and of the two
others at this time with regard specially to the liquidation
of old operations difficult to realize on.
And it must be noted here that these operations
amounted to much larger sums than those discovered by
the inspection made in 1894.
Those of the Bank of Italy, placed by the inspectors at
the sum of 449,420,000 lire, rose to 519,665,000 through a
new audit made by agreement between the minister of
the treasury and the bank, by putting in order the
account current of the credit fonder as to expenses, purchases of credits, and improvements on real estate. At
the end of 1900 the operations remaining to be liquidated
amounted to 245,000,000 lire; therefore 274,400,000 lire
were already liquidated, composed of 56,700,000 lire in
payments on bills of exchange, 96,300,000 lire in payments
on various credits, 36,000,000 lire in transfers of securities not admitted by law into others admitted by law,
and 19,300,000 lire in sales of real estate, making in all
209,000,000 lire. To complete the sum of 274,400,000
lire payment of 30,000,000 lire was arranged for, to be
made by the shareholders in conformity to the agreement
of 1894; 30,000,000 lire was deducted from the capital
established by the agreement of 1896, and 5,300,000 lire
were raised on a loan stipulated with the Istituto Italiano
di Credito Fondiario. It was then remarked that the
effective liquidation was represented by 172,000,000 lire
collected in payment of bills of exchange and credits




163

National

Monetary

Commission

for a total of 153,000,000 lire, and of only 19,300,000
lire collected for the sale of real estate; it was said that
this result was attained with comparative ease, because
the bank had been able to liquidate the part of its assets
that was easiest to realize on. It was therefore concluded
that the greatest effort was already made and that
the bank would not succeed in freeing itself from the
heavier burden that still remained.
It should be said that such a conclusion was not sincerely felt and impartially expressed. It was intended to
impress public opinion and to exert pressure on the Government and the bank to make the latter sell off in a
block its real estate, giving it at a low price to a company
that was to be organized.
Taken as a whole, the operations not realized on of the
three institutions amounted at the end of 1900 to
373,261,839 lire.
With the year 1900 there began in Italy a period of
financial solidity and economic progress. The ponderous
obstacles against excessive expenditures raised by the
Honorables Giolitti, Sonnino, and Luzzatti; the determination already made by Sonnino and energetically continued
by Luzzatti to cease making any issues of bonds so that
through the proposal of Signor Luzzatti, there were included in ordinary expenditures the expenses for the
construction of railroads, for which provision had been
made until then by issuing bonds; the vigorous impulse given to the industrial movement; and the right
administration of the banks and currency—all these
things produced a salutary effect throughout the country.




166

The

Banks

of

Issue

in

Italy

The budget closed in the years named with surpluses
as follows:
Lire.
5,000, 000
41,000, 000
32, 000, 000
69,000, 000
34,000, 000
48,000, 000
63,000, 000

1899
1900
1901
1902
1903
1904
1905

The commercial movement expanded prosperously.
From 2,938,000,000 lire in 1899 it rose gradually to
3,795,000,000 lire in 1905. Exchange, which still remained
at 108.50 in 1899, went down gradually until it reached in
1902 the rate of 98.89, fluctuating a little above or a little
below par in spite of the fact that Italy was redeeming
from abroad large sums in government rentes and other
securities.
All this showed clearly that Italy had now become a
creditor country. The relatively small quantity of
Italian securities still owned abroad were in the hands of
capitalists who kept them as permanent investments, and
no longer constituted an uncertain element of disturbance
for the monetary economy of the country. The Paris
Bourse, on which the whole Italian market had depended
in the past, indicated and still indicates to-day, on a few
days of the week only, the price of Italian government
stock, henceforth entirely unspeculative. It had advanced
on the Paris market from 96.75, the maximum price of
1899, to 106.60, the maximum price of 1905.
As a result of this new situation, Italy, which was
once obliged to provide for payments to be made abroad,




167

National

Monetary

Commission

on account of the State and the country, by shipments of
metal or a continual stream of new bond issues, began
instead to receive annually important sums of gold and silver that flowed into the coffers of the banks of issue, which
gave bank notes in exchange. Their metallic reserve,
which amounted to 600,000,000 lire, of which 61,000,000
lire were a cover for sight liabilities, went up at the end
of 1905 to 1,076,000,000 lire, of which 78,000,000 lire were
a cover for sight liabilities. The circulation increased
from 1,180,000,000 lire in 1899 to 1,406,000,000 lire in
1905, and the ratio between the metallic reserve and the
notes, which had fallen in 1899 to 43 per cent, went up
gradually to 70 per cent, while at the same time the ledger
of discounts and loans of the banks of issue, which was
now purified, aiding and seconding the economic earnings
of the country, increased from 318,000,000 lire in 1897 to
589,000,000 lire in 1905.
Meanwhile the work of improvement of the banks of
issue was progressing. These institutions were continuing to liquidate operations not realized on, and were providing in conformity with the law to reconstitute their
capital. The activity of the Bank of Italy in 1900 was,
in this respect, energetic and profitable. Having provided for systematizing its relations with its credit
foncier in liquidation, the Bank, as we have seen before,
operated to good advantage the conversion of its realty
bonds.
Because of the importance it had for public interest, as
well as for the Bank of Italy and the Bank of Naples,
mention should be made here of the agreement entered
into between the Government and the two banks in order




16S

The

Banks

of

Issue

in

Italy

to assure the completion of the work of the sanitation of
the city of Naples, an undertaking which had been decided
upon after the outbreak of cholera, which plunged that
beautiful city into mourning in the year 1884. The Bank
of Italy and the Bank of Naples, which were largely involved in the " Societk per il Risanamento di Napoli," consented to contribute the sum of 8,000,000 lire, of which
7,200,000 lire was furnished by the former and 800,000
lire by the latter, while the State participated with
7,000,000 lire. The sum to be used for this purpose was
to be taken from the guaranty funds of the respective
realty credit department, to which it should be restored
at the charge of the banking administrations, by annual
quotas, during a period of twenty-five years, until the
liquidation and realization of the credits of the two banks
should have permitted the integral reimbursement of the
sum still due the realty credit department. To these,
meanwhile, the banks themselves ceded for their respective
amounts the mortgages already made out in their favor
on the property of the Societk per il Risanamento di Napoli.
The Bank of Italy and the Bank of Naples were further
authorized to make the Societa del Risanamento loans for
fixed sums at an interest of 3.50 per cent.
As a result of the financial assistance given toward the
completing of the sanitation of Naples, the Bank of Italy
and the Bank of Naples were authorized to deduct from
the amount of operations not realized on that must be
liquidated within 1908, the respective credits not liquidated against the Societk del Risanamento.
Meanwhile, along with the improvement of the financial
conditions of the State and the national economy, improve-




169

National

Monetary

Commission

ment likewise began to be evident in the real-estate market,
whether as a result of the gradual increase of the population in Rome and other centers, or through a spontaneous
return to these values of the capital which, owing to the
high price of transferable securities and the expectation of
a conversion of the public debt, now considered ripe, was
less disposed to investment in these securities. It was
then that with a happy insight into the situation which was
taking shape the general director of the Bank of Italy conceived the plan of making a more rapid and convenient
transfer of the real estate that was serving as a guaranty
for the operations not realized on, through conveyances
of property to building or construction companies. The
bank had now got beyond the period in which the narrow
limits of the law on the one hand and the depression of realestate values on the other placed it in a position of inferiority toward the market. The fortunate results obtained
from the patient attention given to its own building up
and the favorable situation in general had now placed the
bank in a position to treat on a basis of equitable conditions. Of the final result of the operations carried through
by the Bank of Italy from 1900 we shall speak later. It
is enough to state here that the plan conceived by its
general director was not long in giving good results, since
at the end of the year 1905 real estate sales made to
building and construction companies already amounted
to about 45,000,000 lire and operations not realized on
still to be liquidated amounted to 84,369,400 lire, about
87,000,000 lire having been made good with the fund
put aside by the amounts deducted from the annual
profits.




170

CHAPTER

XIII.

THE CONVERSION OF ITAUAN RENTES AND ITS EFFECT ON
THE MONEY MARKET—THE CRISIS OF 1907—MODIFICATIONS OF THE BANKING ACT.

As we have already seen, public opinion in Italy now
considered the market prepared to make a conversion of
Italian rentes 5 per cent gross (4 per cent net), especially
as a former conversion of domestic ^% per cents to 3 % per
cents net had been successful. And, indeed, with a financial situation like that in Italy, the strength of which was
daily increasing through an uninterrupted series of relatively notable surpluses, the belief did not appear unfounded that Italy could reduce the burden of interest on
the great body of its public debt by means of an honorable
operation in conversions. Already various negotiations
made with this purpose in view had had to be suspended,
because of numerous difficulties of a monetary or political
nature arising in the international market. The war between Russia and Japan kept the conversion from being
carried out in 1905; but in the following year under the
ministry presided over by Signor Giolitti, in which Signor
Giuseppe Majorana was minister of the treasury, the great
operation, with the help of Signor Luzzatti and of the
general director of the Bank of Italy, was accomplished in
a most fortunate manner, thanks especially to the prompt
cooperation of French high finance, which wished to give
Italy a mark of special sympathy.
The conversion was made by the reduction of the interest from 4 per cent net to 2>H P e r c e n t net, with a further




171

National

Monetary

Commission

reduction to sH per cent after five years. The result
of the operation may be summed up as follows: Out of a
sum of 8,100,434,840 lire the reimbursement at par was
asked for 4,689,700 lire, of which 1,661,900 lire were
domestic and 3,027,800 lire foreign. It may indeed be
asserted that never in any country has an operation of
conversion of this importance had such a brilliant success.
But the legitimate satisfaction of Italy in this auspicious
event, which crowned a long series of sacrifices and of
sound and fruitful activity and economy, was to be in a
short time, partly because of this very event, tempered
by the arrival of a speculative crisis which produced
a serious disturbance of the money market, with an
inevitable reflex action on the general conditions of the
economic structure. Already, beginning with 1905, the
improved financial conditions of the State and the economic conditions of the country had provoked a speculation
for the rise of all securities, which was pointed out by a
few unheeded observers as extremely exaggerated and
dangerous. The price reached by the aggregate of Italian
securities represented a 70 per cent increase over their
nominal value, without, of course, any justification for
this increase by a corresponding increase in prosperity in
banking, industrial, and commercial undertakings, and by
larger dividends.
On the contrary the securities that rose the highest in
price were precisely those of companies recently created,
which had not yet distributed any dividends, and also
those of companies which had distributed dividends corresponding to 2 or 3 per cent of the current price of the
shares. The watchword, faithfully passed on by the body




172

The

Banks

of

Issue

in

Italy

of speculators, was that they must discount in good season
a brilliant future of economic prosperity.
In the autumn of this same year of 1905 there was a
brief pause that occasioned a decline in prices; however,
speculation for the rise was not abashed, but on the contrary showed the inclination to resume with greater eagerness its place in the fight, being encouraged still more to
continue in its work by the negotiations already mentioned
for the conversion of governmefit stock, which was regarded
as imminent and which would cause new currents of capital
to converge on banking, industrial, and commercial securities. The quotation on the stock exchange of these
securities, which amounted in 1904 to 2,420,000,000 lire
had risen in 1905 to 3,280,000,000 lire and in 1906 to
3,720,000,000 lire, with an increase in the three years of
1,300,000,000 lire, or about 58 per cent, while the paid-up
capital of the joint-stock companies had increased merely
for the greater part by the formation of new companies
by 753,000,000 lire, advancing from 1,585,000,000 lire to
2,338,000,000 lire.
These figures alone are enough to give a clear idea of the
degree of speculative inflation which the Italian market
had reached and to show how amply justified was the foresight that the edifice artificially reared and without any
solid foundation must inevitably collapse. And, indeed,
it would have collapsed in a short time even without the
crisis that seized at this moment the American market and
those of several European countries.
As it had always happened in Italy in like cases, as
soon as a certain stringency in the money supply made itself
felt, as soon as the higher contango made speculators




173

National

Monetary

Commission

feel tardily all the gravity of the situation into which
they had recklessly plunged, and gave an inkling of
imminent danger of disaster, on all sides the Government and the banks of issue were called on to intervene.
With heedless boldness an increase of bank circulation
was called for, under the pretext that the needs of industry
and commerce required a larger money supply.
But the Government and the general director of the
Bank of Italy, in agreement with the general directors of
the two other banks, decided that frenzied and heedless speculation ought not to be subsidized, and that instead it was desirable to liquidate a dangerous and untenable situation, using at the same time all due precaution
to prevent the evil from spreading to sound parts of the
country and attacking the living sources of industry.
Thus, as soon as the grave difficulties were known in
which the Societa Bancaria Italiana was involved, because
of the tying up of a large part of its capital and serious
and irreparable losses; as soon as the panic spread in
the country because of the apprehension that, through
the swift contagion of terror it might be communicated
to other institutions, the general director of the Bank of
Italy was ready to intervene to avoid the disaster that
was threatening. He consented to put at the disposal of
the Societk Bancaria Italiana the capital needed to meet
the pressing necessities of the situation, and obtained also
to this end the contribution of banks and bankers who
9

consented to furnish a part, though not an important
part, of the amount needed. The general director of the
Bank of Italy asked, however, that the administrators of
the company should make themselves personally liable;




174

The

Banks

of

Issue

in

Italy

t h a t the capital of the company should be reduced from
50,000,000 lire t o 20,000,000 lire and should then be
restored by a new p a y m e n t of 20,000,000 lire; in this way
t h e capital was to be reduced to 40,000,000 lire.
The immediate arrangement of the position of the
Societa Bancaria, which as a result of this energetic action
found itself in a most solid situation, p u t an end to t h e
alarm in t h e country. The Bank of Italy had given the
Societa a total credit of 42,000,000 lire. At t h e end of
May, 1909, the credit was reduced t o about 5,000,000
lire through discount of commercial bills and loans on
securities.
This assistance, very different from the forms of aid
t h a t had been afforded twenty years before, showed how
effective a safeguard for a country is the existence of a
great b a n k of issue in moments of difficulty and disturbance; and it showed further t h a t the most difficult
ordeals can be surmounted and t h e most severe disasters
avoided by comparatively insignificant means, when there
is no lack of precise perception of t h e situation and
promptness in meeting it.
The same thing, which has been observed on other occasions, appeared contemporaneously in even more impressive form in t h e prodigious effect produced on t h e international m a r k e t b y the p r o m p t intervention of t h e Bank of
France, which succeeded in arresting t h e panic and diminishing the intensity of t h e crisis in t h e United States, in
England, and, together with the more direct aid of t h e
Bank of Austria-Hungary, even in Germany, b y p u t t i n g
a t t h e disposal of t h e Bank of England not more t h a n
82,000,000 lire.
397810—11—12




175

National

Monetary

Commission

It must necessarily seem inexplicable that the markets
of colossally rich countries should find themselves exposed
to profound disorders and grave disasters because of the
lack of less than a hundred million lire. The reason is that
crises are considerably aggravated by fear, which causes
the disappearance from the market of a great part of the
capital at the very moment when there is greatest need
of it. This psychological cause of the aggravation and
prolonging of crises is instantly removed when it is known
that the great institutions are disposed to intervene, because this is sufficient to restore confidence and bring
timid capital out of its hiding places. But in addition to
this, it must be stated that in moments of crisis it is always
a relatively limited amount that is needed to meet the
differences in operations which in the great body are
arranged by mutual compensations.
The examples afforded by the history of crises and
repeated in 1907, show once more not only the great usefulness of the existence of powerful banking institutions
but also the absolute necessity that their supreme direction
should be intrusted to men of great ability who understand the vast problems of credit and monetary economy in which are summed up, as in a synthesis, all
the problems that touch the economic life of a country.
For it is not enough that the person in supreme control of a great institution of issue should have an
ordinary business sense such as must be possessed by
a manufacturer, a merchant, or the director of a credit
institution, if his affairs are to be well managed. It is
undoubtedly imperative that a bank of issue shall accept
for discount only bills of exchange that represent valid




176

The

Banks

of

Issue

in

Italy

transactions, promptly payable on maturity. But the
efficient cooperation of all the directors provides for
that, especially as they are assisted by a large staff of discount advisers. Together with the duty of watching closely
the quality of the operations concluded by the establishments, a higher function is incumbent upon the general
director of a great bank of issue; he should have a mind
capable of understanding the grave problems of monetary
economy that may suddenly force themselves on his
attention and that he must be able to solve without hesitation or uncertainty, with practiced speed, in order to
ward off a convulsion from the country or, by prompt
intervention, to lessen its disastrous results. Therefore,
a great institution of issue, while it is able in tranquil and
normal times, by a wise distribution of credit and a correct
regulation of the currency to give vital aid to every
sound form of activity and to be a valuable element of
economic well-being, can then perform the important
functions of healing and effacing the consequences of any
misfortune that falls upon the country. Nor in order to
perform properly this very lofty function is it always
enough to study assiduously the economic and monetary
conditions of one's own country; since a disturbance may
also be determined by the reflex of a crisis that breaks
out in other countries for political, monetary, or speculative reasons.
Meanwhile, though the after effects of the crisis are not
entirely done away with, even yet, especially in the harm
done to certain industries, the situation was no longer
acute, and Signor Carcano, minister of the treasury, was
able to turn his attention to several timely modifications




177

National

Monetary

Commission

in the banking law. Although firmly convinced that the
base and limits of the paper currency ought not to be
substantially modified he recognized that the recent
experience had shown that it lacked the necessary elasticity to enable the banks of issue to adapt their workings to the changing needs of the market, especially in
case of monetary stringency. The resolution presented
by Minister Carcano was ratified by Parliament and
became a law December 29, 1907.
He proposed a slight increase of the circulation, as follows:
For the Bank of Italy from 630,000,000 to 660,000,000 lire;
for the Bank of Naples from 190,000,000 to 200,000,000
lire; for the Bank of Sicily from 44,000,000 to 48,000,000
lire.
The irreducible metallic reserve to be left as guaranty
for holders of notes was, however, to be increased: For the
Bank of Italy from 300,000,000 to 400,000,000 lire; for the
Bank of Naples from 90,500,000 to 120,000,000 lire; for the
Bank of Sicily from 21,000,000 to 28,000,000 lire.
The Bank of Sicily continued to enjoy the privilege
already granted by the laws of 1906 and 1907 of an
increase of 10,000,000 lire in bank notes, to be used
exclusively for loan and discount operations in favor of
the sulphur industry.
Minister Carcano proposed further, along with other
stipulations of minor importance, that the limits of the
issue of bank notes beyond the normal circulation and
the relative taxes on circulation should be modified in the
following manner: For the Bank of Italy from 45,000,000
to 50,000,000 lire; for the Bank of Naples from 14,000,000
to 15,000,000 lire; for the Bank of Sicily from 3,500,000 to




178

The

Banks

of

Issue

in

Italy

4,000,000 lire, with the payment of a tax equal to onethird of the discount rate.
In addition to the above sums, and up to double their
amount, it should be modified by a tax equal to two-thirds
of the discount rate.
For subsequent issues, and up to the amount of:
Lire.

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

150, 000, 000
45, 000, 000
12, 000, 000

by a tax equal to the discount rate.
Further increases of circulation or deficiencies of metallic reserve were to pay a tax of 7.50 per cent.
Discount operations at a rate lower than normal in
favor of people's banks and other intermediary institutions were increased: For the Bank of Italy from 70,000,000
to 100,000,000 lire; for the Bank of Naples from 21,000,000
to 30,000,000 lire; for the Bank of Sicily from 6,000,000 to
9,000,000 lire.
By this law was also approved an agreement entered
into between the Government and the Bank of Italy to
decide jointly certain questions that had arisen regarding
the payment of the tax on circulation, and it was established
that the bank was to pay under this head fixed sums;
on the other hand, it should be authorized to comprise
among the profits to be distributed to shareholders, for
the years 1907 and 1908, a part of the income of the fund
set aside to meet the losses resulting from the liquidation
of old operations difficult to realize on.




179

CHAPTER

XIV.

THE RESTORATION OF THE BANKS OF ISSUE.
W i t h the year 1908, according to the provisions of t h e
law, was completed t h e laborious work of restoration of
the Italian banks of issue, and it was completed under
more satisfactory conditions t h a n there had been reason t o
foresee. The Bank of Italy in the period of eight years
succeeded in liquidating operations for 245,000,000 lire, of
which more t h a n 108,000,000 lire were represented b y real
estate which had come into the hands of t h e b a n k for
various credit accounts. We should state t h a t t h e Bank
of Italy not only did not profit b y the s t a t u t o r y reserve
to wipe out unrealizable operations, as the law would have
permitted, b u t increased extraordinarily this reserve,
carrying it by December 31, 1909, to the m a x i m u m total
of 48,000,000 lire. The sales of real estate gave returns of
more t h a n 116,000,000 lire, of which 82,500,000 lire helped
t h e liquidation of old operations, while the remainder was
taken up by mortgages t h a t encumbered the property
sold. To complete t h e carrying out of t h e scheme for
selling real estate in lots, about 14,000,000 lire in rural
property, of which 10,865,000 lire were included in t h e
account of operations not in liquid form, h a d been sold
in 1907 to t h e Istituto di Fondi Rustici.
The general director of the Bank of Italy, a t t h e general
meeting of shareholders held March 29, 1909, in summing
u p t h e work accomplished by t h e b a n k during fifteen




180

The

Banks

of

Issue

in

Italy

years, certified in conclusion a surplus fund of 32,000,000,
in addition to the surplus which already resulted in the
credit foncier in liquidation. This fund w^ould serve to
make up the deficit of the liquidation of the Banca
Romana, for which the Bank of Italy must continue
setting aside annually 2,000,000 lire until the end of 1913.
Considering that to make up for the losses of the liquidation of operations not in liquid form or not allowed
by law, the shareholders contributed out of the annual
profits a sum which together with the accumulated interest
amounted to 113,000,000 lire, and also 60,000,000 lire capital, of which 30,000,000 lire was paid up without increase
of capitalization and 30,000,000 lire deducted from valuation of capitalization—that is, 173,000,000 lire—it is
seen that the total loss was, in round numbers, 140,000,000
lire.
The surplus of 32,000,000 lire, remaining as a final
result of the liquidation of old operations, gave rise to
the question as to the use to be made of it, taking into
consideration the stipulations contained in the agreement
made with the Government in 1894, which, foreseeing
precisely this contingency of a surplus, authorized the
bank to pay back gradually to stockholders the 30,000,000
lire capital paid by assessment that year.
The Bank of Italy considering that the cash fund for
pensioning employees needed replenishing, since it had been
almost used up in the pension service, inasmuch as the
conditions of the cash balance of the bank did not permit
making annual assignments of the sums needed for this
service, and considering, moreover, the opportunity of contributing a special reserve to meet any contingency,




181

National

Monetary

Commission

decided to arrange with the Government an agreement in
which it engaged, in substance, not to restore to the shareholders the 30,000,000 lire capital paid by assessment
and to employ for the above ends the surplus of 32,000,000 lire and any other surpluses that might result from
disposing of extraordinary assets.
It is worth while reproducing here from the report of the
general director of the Bank of Italy the following table,
which shows the situation of the bank at the end of the
years 1894, 1900, and 1908:
[Expressed in million lire.]
December 3 1 —
1894.

1900.

292.7
67.8
184.2
27.7
71.8
23. 1
10.5

300.8
46. 1
258.7
35o
175-3
72. 0
20. 2

388.6
77. 4
164.8
70.8
26.8

826.4
210.3

820. 4
190.5

1,389.1
195. 7

4339

48.27

77. 46

1908.

ASSETS.

Gold
Silver
Loans
Securities
Foreign discounts
Foreign credits

93 2. 1

LIABILITIES.
Circulation

Ratio between the reserve (deducting that for demand
liabilities) and circulation
per cent. .

However, by December 31, 1908, the Bank of Italy had
liquidated more than half a billion in operations of difficult
realization and of a nature different from operations which
banks of issue, in every well-regulated banking system,
should undertake; the bank succeeded in doing this after




182

The

Banks

of

Issue

in

Italy

providing to meet and make up a loss of 140,000,000 lire
resulting from the liquidation of these operations, after
bringing up the statutory reserve to the sum of 48,000,000
lire with an increase, after 1894, °f 5>500>000 lire, holding
besides among special reserves more than 5,000,000 lire
to provide for a possible decline in the price of State
securities owned by it, and for other purposes, with more
than 16,000,000 lire of extraordinary reserve, already
realized to the amount of 10,000,000 lire, the remainder
still to be realized. So, in all, the bank has a reserve of
about 70,000,000 lire.
This much is given from the point of view of the capital
and surplus. From the economic point of view, the
bank appears on December 31, 1908, with an increase of
682,000,000 lire in the metallic reserve—from 360,000,000
lire to 1,042,000,000 lire—of which 640,000,000 lire were
in gold; with an increase, besides, from 33,000,000 lire to
97,000,000 lire in the discounts and foreign credits payable in metallic money; with an increase of 563,000,000
lire in the circulation, which had advanced from 826,000,000 to 1,389,000,000 lire and with an increase from
43-39 P e r c e n t to 77.46 per cent in the ratio between the
metallic reserve and the notes in circulation.




183

National

Monetary

Commission

The three Italian banks of issue show in the aggregate,
from December 31, 1894, to December 31, 1908, the differences indicated in the following table:
[Expressed in million lire.]
December 3 1 Differences.
1894.

1908.

ASSETS.

Gold
Silver
Foreign discounts
Domestic discounts
Loans
Securities
Foreign credits

116
12

1. 179
132
124
550
117
259
32

, 126

1,862

343

325

433
80
23
3io
67

+ 746
+ 52
+ 101
+ 240
+ 50
+ 143
+ 20

LIABILITIES.

Circulation
Demand liabilities and accounts current
Ratio between the reserve (deducting that for demand
liabilities) and the circulation
per cent.

+ 736
+ 18

+ 32

As may be seen, the metallic reserve, including the part
represented by foreign credits and foreign treasury bonds,
has increased from 479,000,000 lire to 1,391,000,000 lire,.
and, without taking into account the part that is to guarantee sight liabilities at the ratio of 40 per cent, has gone
from 42 to 74 per cent of the notes in circulation, which
have increased from 1,126,000,000 lire to 1,862,000,000
lire.
The discount operations of the banks, which amounted
in 1894 to 310,000,000 lire (in which were still included,
for large sums, operations not easily realizable, which were
later accounted separately), are increased to 550,000,000
lire, and, as has been shown by the accurate audits




184

The

Banks

of

Issue

in

Italy

carried out, represent commercial paper surely payable
on maturity; whereas, in the meantime, there has disappeared from the bank statements with the liquidation of
the old operations every trace of the heavy inheritance
from a melancholy past, a result that is really gratifying.
The circulation of the Italian banks of issue now answers
in its entirety to the most severe standards of bankingtechnique, since in addition to commercial paper and State
securities and securities guaranteed by the State, it is
protected by a very large metallic reserve and represents,
for a noteworthy part, true and proper certificates of
coin.
For this reason, and also as a result of the withdrawal
from abroad of an enormous body of Italian securities, the
disturbing element of the money market has been removed
and exchange remains nearly at par and is subjected only
at intervals to the fluctuations, in the vicissitudes of international trade, to which is subject even the exchange of
countries possessing the firmest monetary basis.
And, indeed, considering that after an adverse trade
balance of 1,184,000,000 lire in 1908, there was one of
1,245,000,000 lire in 1909, in which is included a greater
importation of grain to the amount of about 116,000,~
000 lire, in comparison with 1908; considering that the
remittances of Italian emigrants in the United States
were considerably less, and that likewise, because of
the crisis of 1907 and the earthquake of last year, the
number of tourists coming to Italy was greatly diminished; considering that credits made to Italy by discount
of bills of exchange have not been renewed by several




i$5

National

Monetary

Commission

foreign markets since the advance in the price of money
at London and Berlin and elsewhere; and finally, considering that the State has been obliged to make payments
of large sums abroad for railroad materials, one cannot
fail to recognize that Italian exchange, which has not risen
above 100.60, has stood the test of fire.
In this connection it is really interesting to note that
while in 1882, notwithstanding the recent abolition of
forced currency, effected through the importation of
644,000,000 lire in gold, Italian exchange advanced suddenly from 99.32 to 104.22 because of the reflex of the
speculative crisis that seized upon the French market in
that year, in 1907, on the other hand, exchange fluctuated only between the two extreme points of 99.65 and
100.24, in spite of the fact that the crisis of the home market was aggravated by that of the foreign market.
It would be impossible to demonstrate in a more eloquent manner the difference between the situation of
Italy at the two dates mentioned and the difference that
exists with regard to exchange, between the conditions of
debtor countries, with disordered finances and currency,
and those of countries that are in the respects just mentioned in a normal condition. There is no doubt that if
the domestic and foreign crisis of 1907 had found Italy in
the same condition as in 1882 and 1893, exchange would
have had a sudden and considerable advance.




186

CHAPTER
T H E PROGRESS OF ITALY FROM

XV.
1894

TO 1 9 0 8 IN

COM-

PARISON WITH ENGLAND, FRANCE, GERMANY, AUSTRIAHUNGARY, SPAIN, AND BELGIUM.

And yet, the mere statement of the progress made by
Italy in the last fifteen years can not give in the figures in
which it is expressed sufficient elements to permit a just
estimate of its importance, since the degree of progress or
retrogression of a country can not be considered in and
by itself, but must, in a proper and right judgment,
be compared with the progress or retrogression of other
countries in general, and in particular of those with which
it finds itself in more immediate contact and in closer
and more frequent business relations. A country that
has advanced in a given period, in a given proportion, can
not consider itself stronger, if, in the same period, other
countries have advanced in much greater proportion,
because it will find itself, in relation to these countries,
in a position of relative inferiority.
It is therefore timely to make a comparison between
the principal financial, economic, and monetary indices
of Italy and those of other countries from 1894 to 1908,
in order to gain a clearer and more precise idea of the
progress made by Italy.




187

National

Monetary

Commission

The circulation of the principal European banks of issue
has had, from 1894 to 1908, the following variations:
[Expressed in million lire.]

1894.

Bank of England
Bank of France
Imperial Bank of GermanyBank of Austria-Hungary.
Bank of Spain
Bank of Belgium
Italian banks

646
3,48i
1. 2 95
1, 066
909
446
1, 126

1908.

747

Difference.

-f-

Per
cent.

15
50
83
107
80
79
65

101

5. 225

+ 1, 744

2,370

+ 1,075

2,218

+ 1, 152

1.645
800
1,862

4-

732

+

253

+

736

The Italian banks of issue occupy the fourth place, in the
increase, in absolute figures of the circulation, coming
after the Bank of England, the Bank of Belgium, and the
Bank of Spain; and they occupy the third place after the
Bank of England and the Bank of France in the per cent of
increase of the circulation itself.
The metallic reserve has had the following variations:
[Expressed in million lire.]

1894.

Bank of England
Bank of France
Imperial Bank of Germany
Bank of Austria-Hungary.
Bank of Spain
Bank of Belgium
Italian banks
o Of
6 Of
c Of
d Of
« Of
/ Of
0 Of

which
which
which
which
which
which
which




817

3,311
I, 256
a 644
c
e

533
229

536

1908.

772

4,37i
1, 176
& 1,612
d 1,282
^343
0 1,477

Difference.

|

~
45
+ 1, 060

- 5
+ 33
- 6

-

80

+
+

968
749

+ 150

+
+

114
941

+

26,000,000 are in foreign paper.
63,000,000 are in foreign paper.
275,000,000 are in silver and 57,000,000 in foreign paper.
810,000,000 are in foreign paper.
99,000,000 are in foreign paper.
184,000,000 are in foreign paper.
141,000,000 are in foreign paper.

188

Per
cent.

+ 140
50

+ 175

The

Banks

of

Issue

in

Italy

The figures relating to the metallic reserve of the Bank
of Spain can not rightly be compared with those of the
other banks because of the unduly large amount of silver
included in them, which far exceeds the ratio of 25 per
cent allowed but not reached by the Italian banks. In
order to reduce the metallic reserve of the Bank of Spain
to a monetary value approximately comparable to that
of the other banks, it seems just, therefore, to add to the
amount of gold an amount of silver representing 25 per
cent of the total, and to consider the surplus silver at its
market value, according to the proposal made by the
former Spanish minister of finance, Senor Besada. The
reserve of the Bank of Spain thus made up would be:
[Expressed in million lire.]

1908.

Gold
Silver at the rate of 25 per cent
Silver at commercial value . . . .

Difference.

Per
cent.

472

+ 83

+ 93

+ 145

+ 144

+ 113

900

Total

+ 215

157
271

+ 452

100

It appears, therefore, that while Italy occupies, with a
slight difference, the third place after France and AustriaHungary in the increase, in the absolute figures, of the
metallic reserve of the banks of issue, it occupies, on the
other hand, the first place, at a considerable distance from
the other countries, in the proportional increase of the
reserve itself from 1894 to 1908, an increase equal to 175
per cent.




189

National

Monetary

Commission

This increase has a greater importance if one considers
that gold enters into it in greater proportions than in the
other countries, as appears from the following data:
[Expressed in million lire.]

1894.

1908.

GOLD.

Bank of England
Bank of France
Imperial Bank of Germany
Italian banks
Bank of Austria-Hungary
Bank of Spain
Bank of Belgium

817
2, 0 7 0
799

768
3.488
919

433

1. 179

326

1, 241

200

472

88

127

SILVER

Bank of England
Bank of France
Imperial Bank of Germany . . . .
Italian banks
Bank of Austria-Hungary
Bank of Spain
Bank of Belgium

00

00

1, 242

883

469

306

80

132

29

308

276

811

41

32

Percentage of silver to the total reserve.

1894.

1908.

cent. Per cent.
Bank of England
Bank of France
Imperial Bank of Germany
Italian banks
Bank of Austria-Hungary..
Bank of Spain
Bank of Belgium

00

00

37

20

37

25

IS

10

8
57

63

32

20

19

As may be seen, silver forms only 10 per cent of the
reserve of the Italian banks.




190

The

Banks

of

Issue

in

Italy

The ratio between the reserve and the notes in circulation has had in the fifteen years the following variations:
1908.

Difference
from 1894.

Per cent.
103
83
49
74
72
55
42

Bank of England
Bank of France
Imperial Bank of Germany
Italian banks
Bank of Austria-Hungary.
Bank of Spain
Bank of Belgium

Per cent.
— 12
-48
+32

4-12
4- 6
- 9

In this regard also the Italian banks occupy the first
place with an increase of 32 per cent of the ratio between
the metallic reserve and the notes.
In consequence of the movement which took place in the
paper currency and the metallic reserve of the same banks
in the period from 1894 to 1908 the total of bank notes
not covered by reserve has varied as follows:
[Expressed in million lire.]

1894.

Bank of France
Imperial Bank of Germany
Italian banks
Bank of Austria-Hungary.
Bank of Spain
Bank of Belgium

170
39
590
422
461
218

1908.

Difference.

854
1, 194
385
606
741
457

+ 684
+ 1. i55
— 205
+ 184
4- 280
+ 239

Per
cent.

4- 402
+ 2963
34
+
43
+
60
4- 109

The uncovered circulation alone of the Italian banks has
diminished by 205,000,000 lire, at the ratio of 34 per cent.
It should be explained here that in the comparisons
between the circulation and the metallic reserve of foreign

397810-—11—13




191

National

Monetary

Commission

banks and Italian banks no account has been taken with
regard to the latter of the part of the reserve which by
legal provision was to be held as guaranty for the sight
liabilities at the ratio of 40 per cent, and the whole reserve
has been placed over against the total of the notes in
circulation. It is a question here of an article of the
Italian law which has no parallel in the banking laws
of other countries, and which there is no occasion to consider in the comparative study of the metallic reserves
and the circulation, because otherwise the terms of the
comparison would need to be altered to the loss of
Italy, and this would destroy the homogeneity necessary
for an exact comparison. It is a question, in fact, of a
legislative provision which can not alter the state of things
which should be considered with a unified standard. Nor
is it a valid objection that the sight liabilities of the Italian
institutions for which the law requires a reserve of 40 per
cent has no parallel in the foreign bank of issue, since they
are composed almost wholly of negotiable paper of a kind
that does not exist outside of Italy. To raise such an
objection would be to conceal a question of substance
behind a question of form.
Now, the question of substance is that the foreign banks
have, like the Italian ones, under the form of transfers or accounts current, debts that must be considered
as a virtual supplementary circulation, which, on the
demand of creditors, may increase the real circulation.
If, therefore, a reserve is considered necessary against the
sight liabilities of the Italian banks, a reserve should
also be considered necessary against the other debts of




192

The

Banks

of

Issue

in

Italy

the same banks and of foreign ones; or at least, since
the Italian law is more severe on this point, it would be
necessary in a comparative study, to leave out of account
the terms of the law, or else extend, through analogy and
homogeneity, the informing concept of it to foreign banks
also.
Given this standard, this is what the relation would be
between the metallic reserves and the total of the active
circulation, demand liabilities, and deposits in accounts
current:
[Expressed in million lire.]
1908.

1894.

Cireula
lion, demand liabilities,
deposits.
Bank of France
Imperial Bank of Germany
Bank of Austria-Hungary
Bank of England
Bank of Belgium
Bank of Spain
Italian banks

039. 7
894.6
095-4
471.3
490.4
I9I-S
468.8

Metallic reserve.
Total.

3.3U-5
1,256.4
644. 7
817.4
228.8
0448.6
535-7

Per
cent.

66
59
52
46
37
36

Metallic reserve.
Circulation, demand liaPer
bilities,
Total.
cent.
deposits.

158.
369095877.
094.
187.

4,371- 2
I,176.1
1,612.6
772. 1
343- 1
0900. c
1,477-2

74
37
68
37
39
42
67

<*The amounts of the metalic reserve for the Bank of Spain have been calculated
according to Senor Besada's scheme referred to above.

The Italian banks which figure in the last rank in 1894,
with a percentage of 36, advance in 1908 to the third
rank with a percentage of 67, against 74 for France and
68 for Austria-Hungary.
Now that we are on the point of concluding fortunately
with the picture of an auspicious ending, the exposition
of the perilous vicissitudes of the banks of issue in Italy,
and of completing this sketch with a brief outline of the




193

National

Monetary

Commission

principal points of the financial and economical progress
of Italy during the fifteen years, in comparison with those of
other countries, it should be stated that this outline is all
the more necessary in that the new elements to be passed
in review can not be considered foreign to those we have
just examined; so close and intimate are the ties and so
frequent the relations between all of these elements that
it is very often hard to distinguish which of them are to be
considered as causes and which as effects in the economic
and financial vicissitudes of the country.
And indeed, as for the increase of the metallic reserves
of the banks, through which their note circulation has come
to be increased in quantity and improved in quality, is
it not due in part to the work of reconstruction of the
banks, giving value to their notes, and in part to the
greater and more profitable industrial and commercial
activity of the country, enabling it to free itself in a
monetary way from foreign markets ? And has not this
same greater industrial and commercial expansion of the
country been promoted or at least effectively helped by the
banks of issue ?
The industrial and commercial advancement of Italy
is clearly shown by the table on page 195, in which is indicated the total of the international commercial imports and
exports in each of the years from 1894 to 1908, in comparison with that of other countries.




194

The

Banks

of

Issue

in

Italy

[Expressed in million lire.]

Year.

England.

Germany.

France.

Austria.

Belgium.

Italy.

3 , 139
3.087
3 . 179
3 , 221

2,505
3.065
3.244

2, 225

1,347

2, 232

1, 606

3, 262

2,283

1,718

3.417
3 . 610
3,820

3.58o
3,88o
3,917
4,033

2, 617

i,456

2,938

1,661

3,038

1,586

3,903

1.539

4, 133
4,414
4,676

3 . 248

1.563

3.379

1, 646

3.473

1, 7 i 8

5.102

3.721

2,058

5.566
6,243
5.958

4,420

I , 912

4,829

1,889

4,889

1.878

-+-62 1 +137

+ 130

+45

1894.
1895.
1896.
1897.
1898.
1899.

693

9, 200

171

9.398

928
086

561

9,846

241

737

9, 960

787

11.375

397

n.576

1900.

950

12,465

1901 .

906

12,851

1902 .

082

12,862

675
879
116
486
981
652

1903 .

975

13.763

1904.

428

14,457

012

1905 •

S09

15.933

646

1906.

585

17, 900

10,894

1907.

961

19,325

12,219

4, 609
4,791
5.208

1908.

395

18,695

11,363

5, 100

+ 55

+ 103

+ 64

3 . 770
3,8i8
4. 207
4,320

2, 121

Spain.

1, 292

Difference between 1908 !
and 1894—per cent . . j

Italy, as it is seen, comes directly after Belgium, with
an increase of 130 per cent in t h e general movement of
its commerce in comparison with 1894.
The budget also presents satisfactory d a t a during t h e
fifteen years in spite of t h e ups a n d downs passed through
b y Italian finance.
The table on page 196 sums u p as a whole t h e aggregate
results of t h e budgets and t h e movements of t h e public
debts of t h e principal countries during t h e fifteen years.




i95

National

Monetary

Commission

Period from 1894 to 1908.
[Expressed in million lire.]
Expenditures.
Surplus (—) or
Deficit ( + ) .

Total
from
1894 to
1908.

Italy
England
German Empire .
France
Austria
Hungary

28,000

Public debt.

Per
cent.

Total.

|—

29.500 19,800 -

1894.

Total.

1908.

1.56
6.69
+ 2,875 + 117.68
+ 1,990 +
6.42

114 j -

.30

39o I -

. 70

3 1 , 000

12,648
17.872
05.318
32,990

400

.48

13.473

16,403 + 2,930 +

j

—2.50

334

Per
cent.

i95 +

12,453
16,750
°2,443

630

SS.Soo | + 3 » 5 o o j + 6 . 0 0
37.000 54.ooo -

Difference.

Amount to—

+

+ 1,122 +

21.74

a This is the debt of the German Empire. If one adds to this the aggregate of the debts of
the various German states, it appears that the total German debt has increased from 12,183
million lire, in 1894, to 21,218 million lire in 1908, or an increase of 74-J6 per cent.

It is apparent from these figures that Italy has had
a total increase in the budget amounting to 630,000,000
lire, equal to 2.50 per cent of the aggregate expenditure,
having also included in the ordinary expenditures more
than 300,000,000 lire in expenditures on railroads, whereas
the public debt has increased by only 195,000,000 lire,
equal to 1.56 per cent.
The absolute increase may therefore be considered
435,000,000 lire; to this, in order to give the terms of the
comparison the necessary homogeneity, should be added
the 300,000,000 lire expended on railroads; and thus, in
comparison with the other countries, Italy presents an
increase of 735,000,000 lire, without any addition to the
debt.




196

The

Banks

of

Issue

in

Italy

Proceeding with the same method of rectification in
respect to the other countries, bearing in mind that the
increase of debts is generally due to the need of making
up for financial expenditures, we shall have the following
table:
Actual deficit in the
fifteen
years
(millions).
England
German Empire
France
Austria-Hungary

1,122)
2,761
1,600
2,196

Per cent of
debt to
1894.

6.69
113.01
5.16
16.29

All this confirms in a sufficiently eloquent manner the
fact that Italy, even in regard to State finances, has obtained during the fifteen years results that seemed beyond
all hope and that place it in the first rank for the importance of the increase of returns and the small increase in
the debt. One must consider, of course, with a comparative and proportioned standard the progress made in the
fifteen years by the various countries, keeping in mind the
different degree of economic and financial power of each
of them and the possibility of richer countries being
able to face financial deficits and bear the burden of an
increased debt without its weighing too heavily upon their
economic conditions. This, considering the degree of the
pressure of taxation in relation to private wealth, and
considering the weight of the burden of the debt, would
be very difficult, if not entirely impossible, in Italy.




197

National

Monetary

Commission

Therefore Italy should be given credit for the great
merit of having grasped the gravity of the situation and
its inherent dangers and of having avoided these dangers
by improving the situation, thanks to intelligent, energetic, and enlightened action.
As we have said above, the successive measures taken
by the Honorables Sonnino and Luzzatti contributed to
put Italian finance on the right road, and particularly the
determination to cease from all issues of public securities,
including those for building railroads, which are provided
for by the ordinary resources of the budget. This determination was called extreme and may still seem so to-day,
unless one considers that Italy had abused debts beyond
all measure of prudence and proportion, and the burden
of these debts far surpassed that of other countries, taking
into account the relative private wealth. Here is a statement of the situation in this regard in 1897:
Sum total and cost of the public debt.

Total
(millions).

Italy
France
England
Germany
Austria-Hungary
Belgium

Per cent of
private
wealth.

Cost
(millions).

Per cent of
private
wealth.

13,000

24.07

703

1.30

31,090

13.80

1, 0 2 0

•45

16,019

6.3S

625

iS.767

637

.25
. 29

13.972

7.17
16. 25

2.328

6.85

113

653

.76
• 33

It will be helpful now to see what has happened since
then in the matter of loans in Italy and the other countries. The following table gives the total amount of obligations issued for the past eleven years, distinguishing
those of the Government, the provinces, and the com-




198

The

Banks

of

Issue

in

Italy

munes and those of the banking, industrial, and railroad
companies:
State, proTotal issues vincial, and
(millions).
communal
issues.
Per cent.
Italy
France
England
Germany
Austria-Hungary
Belgium
Spain

12,047
34,309
31,647
2,509
3.873
3,550

13
18
35
37
47
44
58

Banking,
industrial,
and railroad
issues.
Per cent.
87
82
65
63
53
56
42

As may be seen, Italy during the past eleven years is
the country that has had recourse to loans for relatively
the smallest sum in comparison with other countries, and
has had occasion to borrow only 155,300,000 lire on
government, provincial, and communal obligations, and
1,039,600,000 lire for issues of stocks and bonds for
banking, industrial, commercial, and railroad companies.
If one considers the small amount of the issues for the State
and for companies, together with the regulation accomplished of public finances and the economic progress of the
country, eloquently proved by the figures of the movement of trade, it will be seen that Italy has been able to
find within itself the strength to rise from the slough into
which it had fallen, and has, by faithful and fruitful work,
multiplied the productive capacity of its available capital.
From the comparison of the progress of the various
countries in the last fifteen years all the relative value of
the progress of Italy does not appear, a value that can not
fail to attain much greater importance if we consider that
Italy was in 1894 in a very serious economic, financial, and




199

National

Monetary

Commission

monetary condition, and was obliged from that time
to devote a great part of its activity to curing the ills
by which it was afflicted before being able to carry on
the work of economic reconstruction; whereas, with the
exception of Spain and England, which had to bear the
expense of the wars in Cuba and the Transvaal, the
other countries were able to continue quietly devoting
themselves to their economic activity.




200

CHAPTER

XVI.

CONCLUSION.

The satisfactory results obtained in every field, of
which Italy is justly proud, would not, however, have
been possible without the accompanying aid of all propitious circumstances; unless, after framing suitable laws,
gradually adapted to the modified conditions of the
country and the banks, their administration had been
scrupulously and profitably carried out; unless, while the
banks were bent on improving their own situation, the
State had done energetic, active, and vigorous work to
establish finance upon a stable and durable footing; and,
above all, unless the industriousness of the inhabitants
and their powers of sacrifice and economy, reconstructing and increasing the public riches, had efficiently aided
the restoration of the banks, circulation, and finance; and
indeed, if the Italian people, by the vigorous impulse given
to industry, had not opened new avenues of trade; if they
had not been aided by the upbuilding and compensatory
elements represented by the industrious and economical
emigrants who pour into the country plentiful remittances
of money, and by the exploitation of the glories of history,
ajt, and nature, that bring under its wonderful sky tourists
from all quarters, it would not have been possible to change
gradually the position of Italy from a debtor country to a
country often creditor; the wisdom and firmness of statesmen and bank directors would not alone have been enough
to perform the wonder.




201

National

Monetary

Commission

For it is due precisely, in great part, to t h e fruitful
industry of t h e Italian people t h a t Italy, ceasing t o be a
debtor country, under monetary tribute to foreign countries, has become a creditor country and has seen t u r n e d
in its favor t h e economic and monetary balance, even t o
t h e point of receiving from abroad large sums of gold which
have flowed into the banks of issue in exchange for notes.
I t is likewise due further to the accumulations of savings
of t h e Italian people t h a t a considerable p a r t of t h e S t a t e
securities, which had been owned abroad, has returned
t o Italy, so as t o save t h e country henceforth, as we have
already seen, from t h e violent and disturbing effect of
t h e sudden return of securities t o which debtor countries
with abnormal finances and circulation are often exposed
whenever t h e creditor markets are affected b y a crisis or
pressed b y monetary difficulties.
And indeed, whereas in the preceding crises of t h e
international market, Italian exchange had t o suffer considerable disturbances, the crisis of 1907 left it quiet in
t h e neighborhood of par in spite of the fact t h a t t h e home
market, as we have seen, was also, for reasons peculiar
to itself, gravely affected.
On t h e other hand, it must be recognized t h a t t h e efforts
of the Italian people would have given less results if they
h a d not been ably aided in the work of economic reconstruction by the right direction given t o t h e public finance
and the regulation of the banks and circulation.
As in t h e preceding period of difficulty and distress, so
in t h e fortunate period of reconstruction it has been possible to see t h a t there is an intimate connection between
t h e finances of a country and its economic conditions.




202

The

Banks

of

Issue

in

Italy

For this reason, in order to give to each in equitable measure the merited share of praise, it should be recognized that
all those who in the government and direction of the banks
of issue helped to start finance and the circulation in the
right path have acquired a high title to the gratitude of
the country whose economic reconstruction they have
efficiently aided. And among the men who succeeded
each other in the Government we should mention with
special honor the Honorables Giolitti, Luzzatti, and Sonnino, who in the field of finance and that of circulation
have made an ineffaceable impress upon the history of
modern Italy.
The edifice of finance and credit auspiciously and
solidly reconstructed, with such keenness of intellect and
so much vigorous effort, must henceforth be considered
as a sacred thing, over the safety of which Italy must
keep watch with jealous care. This warning can hardly
seem superfluous if we consider that although there is
reason to suppose that the severity of the law, the ability and unanimity of the men placed in the management of the banks of issue, and the sad but salutary
records of the past, will save Italy new banking crises;
there is, on the other hand, reason to fear that the sound
structure of finance may be shaken unless efficient and
energetic action is brought to bear to repulse all the
attacks to which, under every sort of pretext of the public interest, the Italian budget is exposed.
This warning is all the more opportune if one reflects
further that the passing of the management of the railroads to the State represents an unknown quantity that
is not reassuring, and demands, meanwhile, an enormous




203

National

Monetary

Commission

sum that will not be adequately remunerated by the
railroad earnings—a sum that must be obtained by
issues of special obligations; and also if one bears in
mind that, as we have already seen, the national economic conditions are still disturbed, especially in the
industrial field, by the errors committed by speculators
in 1906 and by the results of the crisis that broke out in
1907.




304

Statistical items on finance, circulation, credit, and trade in Italy from 1871 to 1008.
[In millions of lire,]
B a n k s of issue.

M o v e m e n t of t r a d e .

Loans to the state.

State budget.

Italian rentes.

State circulation.

Reserve.

Year.
Discounts.

Exchange.

N o t included] Included in
in the total the total of
of circulation. circulation.

Demand
Deposits. liabilities.

Circulation.

Against demand
liabilities.

Imports.

Against notes.

Exports.

Fiscal
year.

Maximum.
Minimum.

Total.

T o t a l expenditures.] S u r p l u s .

Deficit.

Effective
d e b t of t h e
state at the
e n d of
fiscal y e a r .

Notes in
circulation.

Minimum.

Reserve
against
the notes
circulation.

Per cent.
Dec. 31

678

61

109

in

790

63

129

420

119

840

53

126

387

880
940

56
57

32S

83
94
97

940

352

102

380

36

33.33

271

307

961

.075

43
42
43

33-33

1.182

, l62

307

1, 2 6 1

33-33

239
265
275

282

128

578
623
664
633

318

1. 2 9 6

100

621

33

33-33

243

276

81

113

646

33-33

262

940

80

137

629

33-33

98

940

103

143

672

38
46
48

3«r

130

940

121

732

423

147

940

97
88

163

404

113

940

9i

427

96

940

374

75

598

343
399

1871.
1872.

1873.
1874.
1875.
1876.
1877.
1878.
1879.
1880.
1881.
1882.
1883.

334

1884.

89

102.31

76

56. 20

104.81

978

115.70

108.55

i, 207

,022

109.40

105.15

300

1.307

,208

108.85

106.40

75-67
74.30
74
77-35
78.30

70.25

. 131

106.57
in.37
US-55

229

275

r.141 I

934

113

107

78.20

69.30

33-33

268

316

1,062

, 021

no.

70

107.05

82. 15

75.45

40

33-33

2S3

323

1,252

, 072

114.22

107. 67

79.90

749

54

269

323

1,187

. 104

in.97

100.60

86.60

126

736

42

255

297

1. 2 4 0

.165

IOI.55

9 8 . 72

109

140

732

257

304

i , 227

,153

104. 22

99.32

90. 90

8 6 . 70

94

134

794

47
45

33.33
33-33
33.33

89.75
95. is
92.55

33-33

405

45o

1,288

,186

101.25

9 8 . 75

91.05

84.05

899

9i

453

33-33

48

446

109.60

99.67

100.40

1,320

6s.80
6 7 . 17
71

72.60

86.32

89.47

69.80
71.45
68.40
68.85
73.9o
74-95
74.47
78.40
82.35
88.95
94.56
90.80
93.50
99-45

50.50

65.35
58.10

58.95
66. t o
67
62. 25
68.70
73.9o
79.55
87.25
84. 20

1871.
1872.
1873.
1874.
18751876.
1877.
1878.
1879.
1880.
1881.
1882.
1883.

85.55
F i r s t semester, 1884.
8 9 . 4 3 I 1884-85.

1,176

7- 651
7- 680
7- 626
7- 662
7- S07
S. 73i
8. 797
8. 818
8.837
8.896
9- 506
10. 847
904

1, 224
1.287
1,225
1.259
i. 321
1.369
1.3i9
1.3i7

42

1.329

19

1,401

5i

2,116

9

340

a 13

340
218

«I3
a*3

289

1.469
725
1. 581

013

June 30—
617

140

196

146

155

948

674

130

128

137

182

t,o32

713

140

73

160

157

I, 076

674

123

IS

165

153

1. 07S

744

127

177

162

67t

123

233

645

121

123

599

no

617

126

3io

67
55
55

98
97
75
73

313
3i8

5i

391

63

174

432

117

13*

163

1,180

457
469
484
484
526
589
627
7S4
55<5

1885.
1886.
1887.
1888.
1889.
1890.
1891.
1892.
1893.
1894.
18951896.
1897.
1898.
1899.

72

128

156

I. 139

69
83

130

163

1. 154

113

157 i

I. 176

72

ii3

176 !

1,236

279

1900.,
1901.,
1902..
1903-•
1904-•
1905..
1906..
I907-.
1908..




382
391

1, 117

52
Si
54

33-33

155

1, 126

52

33-33

255

149

1, 122

50

33-33

229

173

1,138

58

33-33

112

153

I, 212

142

I, 126

192

131

I, 085

5i
57
S2

33-33

201

40. 00

399
409
385
358
393
389
396
479
475

171

137

1,069

40. 00

500

X75

151

1,086

40. OO

171

1, 122

40. 00

539
536
5l6
551
568

40. 00

607

40. 00

792

6j

116

182

I. 377

101

103

196

1, 406

79

100

187

1.605

109

128

21S

1,851

117

109

216

1,862

0

397810—11. (To face page 204.)

33-33
33-33

Consisting of s t a t e securities.

52
60

5S
61
69
65
63
65
63
7i
73
78
75
87
86 ,

33-33
33-33

40. 00

40
38

1,460

950

100.14

98.37

9 1 . 10

1.458

1,028

100.45

99-84

102.87

9 6 . 21

98.15
103.ss

1,605

i.ooS
892

101.76

100.40

100.75

92.82

100

102.2Z

100.10

951
896

102.26

100.09

102.10

100.55

103.85

100.67

105.05

102.30

1.191

877
958
964

115.95

103.97

1.095

1,026

115.70

106.37

1,187

1,038

109.37

104.02

1,180

1,052

112.62

104.50

1.192

1,092

106.27

104.32

100.58

1.413

I, 204

109.60

I04-7S

102.05

37
38
34

434
451
451
460
439

32

410

1.320

35
34

443
447
447
536
527
555
600
605
581
614
633
670
863
888
, 076

i, 127

32
42

1.175
i,39i

1.173

40. 00

8i5

43
47
49
47
43
48
49
5i
64
64

40. 00

998

70

40. OO

,145

, 220

2,512

40. OO

,341

2,760

40. 00

,391

,428
.477

1.893
1.851

3,031

1,858

40. OO
40. OO
40. OO

101

99-54
98.37
98.45
96.28
97.42
97-49
92. 61
95- 14
97-33

94.03

1885-86.
1886-87.
1887-8S.

11.073

1,904

57

2.005

230

90. 90

1888-89.
1889-90.

1.775
1,696
1,682
it8i8

90.50

1891--92.

9 2 . 26

96.65

87-45

97-99

9S.5o

90.30

96.75
96

9 i . 25

1899-1900]

1,669
1,669
1,680

90. 90

1900-1..

1,711

101.50

93-75

1901-2..

1.826

5
4i
33

104-10

99.50

1902-3..

1.810

70

12.

104.40

101.90

1903-4..

1.788

12.

12.

89.35
82.64
90.41
86.23

I.431

108.45

105.80

103.30

98.41

1.338

107. 32

105.40

101.24

97-20

1.718

1.374

ioS-97

101.40

102.78

99.07

1,776

1.47=

102.70

105.02

101.05

1.862

1,517

1 0 0 . 27

104-55

101.90

1.914

1.597

101.66

2,065

1. 731

100.10
100.12

100.21

98.99
99-05
99.88
99-75
99-75
99-65
99-77

ios-55

99-52

106.59

103-64

I05-75

102.02

103-74

100.58
101.77

iS93-94.
iS94-951895-96.
1896-97.
1897-98.
1898-99.

24
46

1, 7 2 1
1, 7 6 0
1,680

15

1904-5--

1.832

106.60

I03-55

I905~6__

2,428

34
48
63

105.95

102

1906-7..

2,086

T02

103.90

100.70

1907-8..

2, 180

62

105

101.67

1908-9..

2.439

82

105.60

5 C o n s i s t i n g of specie.

98

°I3

332

o

I 7

332

o

I 7

033
33o
497
629
453
907
610
541
797
807

87
86.70
78.05
72
83.80
78

1892-93.

U

022

95-So
94-IO
93.50
87.30
90.95
93-75

91.50

°I3

328

1890-91.

93.8i
89.96

1,815

a

584

91. 60

93-52

305
318

1.637
1,696

92.05

1.507

105

96

99-15
98. is
97.6o

i, 700

too.24

90.25

333
333
333
336
399

°I5

400

& 80

400

ft 8 0

002

12.
12.

993
894
867
832
865
772
669
648

466
453
451
4SO
448
446
444
443
44o
438
438
436

°.J5
°I5
°I5
&80

&9i
*>133
&

I32

^130

*-t28
b

127

& 124
&I23
0 130

frnS
&II7

&I78

The Italian Banks of Issue




BY
CARLO F . FERRARIS
Professor in the University of Padua

205




THE ITALIAN BANKS OF ISSUE.
[From Conrad's Handworterbuch der Staatswissenschaften,

3d edition]

BY

CARLO F. F E R R A R I S
University of Padua

PART I.—The banks prior to 1893.
Page.

I.
II.
III.
IV.

The Banca Nazionale
The extinct banks of issue
The Bank of Naples and the Bank of Sicily
Bank legislation from 1866 to 1892

207
209
212
216

PART II.—The banks since 1803.
V.
VI.
VII.
VIII.
IX.
X.

Causes of the new legislation
Character and administration of the banks of issue
The system of branch banks
Capital of the banks of issue
The issue of bank notes
Discounts, loans, deposits.—Drafts, checks, etc.—The rate of
discount
XL The surplus
X I I . The banks in their relations to the State
X I I I . Statistics

PART

221
225
231
233
234
242
248
250
254

I.—THE BANKS PRIOR TO 1893.
I . — T H E BANCA NAZIONALE.

The Sardinian Government in the year 1844 sanctioned
the foundation in Genoa of a discount and deposit bank
having the privilege of issuing notes, and a similar institution in Turin was chartered in 1847. Each was to
have a capital of 4,000,000 lire. Royal decrees of 1849
and 1850 authorized the consolidation of the two banks
into a single institution called the Banca Nazionale, with
its seat in Genoa, with a capital of 8,000,000 lire, a
monopoly of the issue of bank notes, and a chartered term
397810—11—14




207

National

Monetary

Commission

of existence of thirty years. In 1852 the capital was
increased to 32,000,000 lire and the bank proceeded to
establish branches.
In 1859 the institution extended its operations to the
newly liberated Lombardy. A new bank act was sanctioned by royal decree of October 1, 1859, and the capital
was increased to 40,000,000 lire. In 1861 two banks of
issue, the Banca di Parma 0 and the Banca di Bologna
(or Banca delle Quattro Legazioni)h were incorporated
with it. At the same time new branches and subbranches were opened in the Neapolitan and Sicilian
provinces, and the institution assumed the title of Banca
Nazionale nel Regno (National Bank in the Kingdom).
In 1865 its capital was increased to 100,000,000 lire. A
branch was at this time established in the new capital of Italy, Florence, and later subbranches were opened
in other cities of Tuscany. The same thing was done in
1866-7 in the newly liberated Venetian provinces, and the
institution absorbed another bank of issue, the Stabilimento Mercantile Veneto, at Venice.0 Finally, in 1871
headquarters were established at the new capital, Rome,
and in 1872 the bank was authorized to increase its capital to 200,000,000 lire, of which only 150,000,000 lire was
paid in.
Thus the little Sardinian bank, by the absorption of all
other banks of issue in upper Italy and the establishment
°The Banca degli Stati Parmensi, at Parma, had a capital of 500,000
lire, of which 300,000 was paid in.
&The Banca delle Quattro Legazioni, at Bologna, had a capital of
200,000 Roman scudi.
c
T h i s institution had a capital of 2,100,000 florins. It issued bank
notes called cash certificates (buoni di cassa), whose average circulation was
between 1,200 000 and 1,500,000 florins.




208

The

Italian

Banks

of

Issue

of branches and subbranches in many important places
throughout the country, rose to the position of the leading credit institution in the kingdom.
From 1885 it carried on a great mortgage business, a
feature of which was the issue of debentures.
I I . — T H E EXTINCT BANKS OF ISSUE.
BANCA NAZIONALE TOSCANA—BANCA TOSCANA DI C R E D I T O —
BANCA ROMANA.

The grand-ducal government of Tuscany established in
1816 a public discount bank, the capital of which was
advanced by the State and which was invested with the
privilege of issuing bank notes. After an existence of
only ten years this bank was dissolved and was succeeded
by a new discount bank (with its seat at Florence), which
had a capital of 1,000,000 Tuscan lire (afterwards increased
to 1,250,000 lire) and had the right to issue notes, which
were guaranteed by the Government up to three times
the amount of the capital. A discount bank (joint-stock
company) was established at Leghorn (Livorno) in 1837,
with a capital of 2,000,000 Tuscan lire, which was authorized to issue notes likewise up to three times the amount
of its capital. In 1841 the Bank of Siena, a joint-stock
bank, with a capital of 150,000 lire, was opened. It could
issue notes up to the amount of its capital. In 1846 the
Bank of Arezzo, a joint-stock bank, was established,
with a capital of 120,000 Tuscan lire, up to which amount
it had a right to issue notes. Then came the Bank of
Pisa (1847), a joint-stock bank of issue, with a capital of
150,000 lire, soon raised to 300,000 lire. Its circulation
was restricted in the same way as in the case of the two




209

National

Monetary

Commission

preceding institutions. In 1850 the Bank of Lucca was
opened, with a capital of 299,666 lire. It was authorized
to issue notes up to twice the amount of its capital and
was allowed to make them of very small denominations.
Tuscany had now six banks of issue. There was no legal
provision in regard to the mutual redemption of notes.
In 1857 the two banks at Florence and Leghorn were
consolidated. The new institution, which had a main
office in each city, took the name of National Bank of
Tuscany {Banca Nazionale Toscana). Its capital was
fixed at 8,000,000 Tuscan lire and was to be increased by
one-third of this amount every fifth year. The other
banks of issue were permitted to change their status and
convert themselves into branches of the newly constituted
bank, and, in accordance with this provision, the banks
of Siena, Pisa, Lucca, and Arezzo were merged in i860
in the Banca Nazionale Toscana. The capital of this
institution was now 9,410,000 Tuscan lire and was
soon raised to 10,000,000 lire. In 1864 it opened a subbranch at Pistoja and in 1873 one at Grosseto, and later
other subbranches were established. The act of August
18, 1870, prolonging the term of the bank's charter, authorized the increase of its capital up to a maximum of
50,000,000 lire. The administrative council of the bank,
however, fixed the capital at only 30,000,000 lire, of
which 21,000,000 lire was paid in.
In March, i860, the provisional government in Tuscany decreed the establishment of the Tuscan Credit
Bank for the industry and trade of Italy {Banca Toscana di Credito per le industrie e il commercio dy Italia).
Its capital was supposed to be fixed at 40,000,000 lire




210

The

Italian

Banks

of

Issue

but only 5,000,000 lire was paid in. This institution, in
addition to all regular banking business, was authorized
to issue cash certificates (buoni di cassa) up to three times
the amount of the paid-in capital. It began business in
1863. It was located at Florence and had no branches.
A bank was established at Rome as early as 1833.
After a rather inactive existence it was superseded in
pursuance of a papal decree of 1850 by a larger institution, the Bank of the Pontifical States (Banca dello Stato
Pontiftco), which had branches at Bologna and Ancona.
Its capital was to amount to 1,000,000 scudi (5,375,000
Italian lire), but only 600,000 scudi was paid in when it
was opened. This institution had the monopoly not
merely of the issue of notes (in denominations of 1, 10,
20, 50, and 100 scudi), for which a one-third reserve
was to be provided, but also of every kind of banking
business. Its charter was to terminate in 1881. The two
branches were abolished in 1857 and were superseded by
the Bank of the Four Legations (Banca dello Quattro
Lagazioni), which was merged in 1861 in the Banca
Nazionale nel Regno. The administration of the Banca
dello Stato Pontifico was anything but a model one, so
that in 1866 the papal government was compelled to offer
its security for the bank notes. At the close of 1869 the
circulation was 30,700,000 Italian lire and the reserve
10,900,000 lire.

When Rome became the capital of the Kingdom of
Italy, in 1870, the notes of the bank were declared a legal
tender in the province of Rome, and the institution was
reconstituted under the name of the Roman Bank (Banca
Romano). It renounced its monopoly in consideration




211

National

Monetary

Commission

of a payment of 2,000,000 lire, other banks being permitted to establish branches at Rome. In 1874 it was
authorized to increase its capital to 15,000,000 lire, which
was all paid in. The Government at the same time
ceased to guarantee the security of the notes. This bank
did not make use of the privilege of establishing branches."
I I I . — T H E BANK OF NAPLES AND THE BANK OF SICILY.

From the second half of the sixteenth century there
were large pawn banks in the Kingdom of Naples. At
the time of the French Revolution the Bourbon Government seized their property in order to make use of the
funds for carrying on the war against France. The
French Government sought, by means of a law enacted
in 1806, to retain one of the old banks—that of San Giacomo—for the service of the court and the Government
and to establish a bank for the business of the people,
and in 1808 it proceeded to create a single institution in
place of the two—the Bank of the Two Sicilies. The
necessary capital, however, was not forthcoming. Nothing came of a further attempt in 1809, but the restored
Bourbon Government succeeded in bringing into existence,
by decree of December 12, 1816, the Bank of the Two
Sicilies. This was a dual establishment—a court bank
for the service of the Government, and a people's bank,
which took deposits and loaned money on pledges. The
former was dependent on the minister of finance and
the latter was under the supervision of the Government.
The employees in both cases were government officials.
The scheme included also a discount bank as part of the
establishment. This discount bank, which was opened




a

F o r later history see sections IV and V.
212

The

Italian

Banks

of

Issue

in 1818 with capital advanced by the Government, was
in reality nothing more than a department of the court
bank. It was constantly involved in the financiering
operations of the royal treasury. Although the Government acted rather arbitrarily in the matter of fixing
the rate of discount, and was not always ready to
comply with the provisions determining their status,
these institutions enjoyed the confidence of the people
in a high degree, and they were extensively utilized,
all the more so as they were the only institutions of the
kind in the country. A new department of the court
bank was opened at Naples in 1824, designed to serve
some special branches of governmental and local administration. Private individuals were, however, also allowed to avail themselves of it, so that the distinction
between the court bank and the people's bank practically ceased to exist. A similar department of the
court bank was established much later (1857) at Bari.
The characteristic business of the Bank of the Two
Sicilies, the feature that made it popular, was the deposit business {servizio apodissario). The certificates of
credit' (fedi di credito) were transferable by indorsement.
They might be converted into a certificate for the purpose
of making a succession of payments by means of cash
orders, called "polizze," each payment being entered on
the certificate, which thus served as a pass book, the depositor having in this way an actual account current with the
bank, of which he could avail himself in making payments
to third parties. The certificates of credit, cash orders,
and the orders for small amounts (polizzini) became a
legal tender and were redeemable in coin at the tax offices.




213

National

Monetary

Commission

They, as well as the drafts (Mandati) issued by the bank,
served for making remittances, a quality which in those
days of defective means of communication was very useful and highly appreciated. These instruments were
therefore very extensively used in the Kingdom of Naples.
The Italian Government reorganized the Bank of the
Two Sicilies by a series of decrees between i860 and 1866.
The institution, which was renamed the Bank of Naples,
was deprived of its character as a state bank and was
transformed into an independent credit corporation, having its own administration under the supervision of the
Government. In 1866 the bank began to issue certificates
of credit for a specific sum, transferable without indorsement and drawn on the cashier, which were in reality
nothing else than bank notes. In the same year, the currency in Italy having come down to a paper basis, the
certificates of credit and the cash orders were declared a
legal tender within the provinces of the former Kingdom
of Naples. In the meanwhile the bank proceeded to
establish branches, and it has since made extensive use of
this privilege. The act of April 30, 1874, conferred upon
the Bank of Naples the character of an actual bank of issue,
although it carried on the business also of a pawn office,
a savings bank, and a mortgage bank. Subsequently an
agricultural credit department was added. A royal decree
of September 23, 1874, assigned the sum of 48,750,000
lire as a permanent fund for the issue of notes.
In 1843 the Neapolitan Government had established
a court bank at Palermo and another at Messina. They
were dependencies of the Bank of Naples, which, at that
time, as we have seen, was styled the Bank of the Two




214

The

Italian

Banks

of

Issue

Sicilies. The revolution of 1848 severed the connection,
and after the restoration of the Bourbon dynasty, in 1849,
the separation of the Sicilian court banks from the Bank
of the Two Sicilies was consummated. In 1850 the two
banks were consolidated into a single institution, styled
the Royal Bank of the King's Domain in Sicily {Banco
Regio dei reali Domini al di Ih del Faro). The institution
was a bank of deposit for the Government and for the
people. It had the same arrangements as the Bank of
Naples in the matter of certificates of credit and cash
orders, which were a legal tender. The banks served the
needs of the financial administration of Palermo and Messina. The royal domains in Sicily were mortgaged as
security for the deposits. In 1858 two newly established
discount banks at Palermo and Messina were affiliated with
the Banco Rigio. The events of i860 affected these institutions in a most serious manner, a large part of their property being taken for the purposes of war. The gradual
restoration of the funds enabled them to resume banking
operations, and in 1867 they were transformed into the
existing Bank of Sicily {Banco di Sicilia), which is a
public corporation and no longer a state institution. In
1872 the bank was authorized to establish branches.
In 1870 the Bank of Sicily began to issue actual bank
notes in the shape of certificates of credit for a specific sum,
drawn on the cashier and transferable without indorsement. The act of April 30, 1874, consummated the conversion of the institution into an actual bank of issue, and
in the same year a fund of 12,000,000 lire was assigned
to it for its bank-note circulation. In 1871 the bank
instituted a realty credit department and in 1888 an
agricultural credit department.




215

National

Monetary

Commission

IV.—BANK LEGISLATION OF THE PERIOD I866-1892.

A royal decree of May 1, 1866, rendered the notes of
the Banca Nazionale nel Regno a forced currency. This
institution at the same time made a loan of 250,000,000
lire to the Government for the war that was to be wTaged
against Austria. The other banks of issue (the Bank of
Naples, the Bank of Sicily, and the two Tuscan banks)
were authorized to continue the issue of certificates of
credit, cash orders, cash certificates, and bank notes, and
these instruments were to remain a legal tender; that is
to say, they were to retain this quality in the provinces in
which they had hitherto possessed it. They continued,
however, to be redeemable in coin or the notes of the Banca
Nazionale. Thus arose in the history of Italian banking
the oft-recurring distinction between forced currency and
legal-tender currency.
The Banca Nazionale nel Regno had thus acquired an
exceptional status, which it deserved to have, inasmuch
as it had extended its network of branches and subbranches over the entire Kingdom. At the close of 1873
it had 790,000,000 lire in circulation on account of the
Government (the indebtedness of the State to the bank
having reached this sum) and 353,300,000 lire on its own
account, and it had in addition loaned 39,500,000 lire to
the other institutions, which had immobilized that
amount of coin in their vaults. The aggregate amount
of outstanding bank notes without forced circulation
(including the notes of the Banca Romana, which had been
incorporated in the Italian banking system in 1871),
certificates of credit, and cash orders was at that time
733>300,ooo lire.




216

The

Italian

Banks

of

Issue

In spite of the presence of notes of very small denominations (50 centesimi, 1 lira, 2 lire) up to an aggregate of
101,300,000 lire, there was a considerable volume of
legally unauthorized small notes in circulation that had
since 1866 been taking the place of the silver fractional
currency, which had disappeared. They were issued by
friendly societies, communes, charitable institutions, savings banks, people's banks, mercantile houses, and private individuals, and at the close of 1873 they amounted
in the aggregate to 33,300,000 lire. The necessity of
doing away with this abuse, a certain hostility in political
and banking circles, as well as among business men, toward the privileges of the Banca Nazionale, and the
need of regulating the issues of the Bank of Naples and
of the Bank of Sicily on the same basis as the issues of
the other institutions, brought about the legislation of
April 30,1874. This placed the Banca Nazionale and the
five other banks on an equality as regards privileges and
duties. All the six institutions were organized into an
association (consorzio), which had to put at the disposal
of the Government, in place of the previous advances of
the Banca Nazionale, 1,000,000,000 lire in so-called "association notes" issued in denominations ranging from 50
centesimi to 1,000 lire. These association notes constituted, as irredeemable paper money (forced currency) , the basis of the entire currency. The volume of
notes outstanding on account of the State had reached,
at the close of 1875, the sum of 940,000,000 lire, which
was never exceeded, as the Government did not make
full use of its right to an issue of 1,000,000,000 lire. The
banks were allowed to issue their own notes, redeemable
over the counter in association notes in denominations




217

National

Monetary

Commission

ranging from 50 to 1,000 lire, up to three times their
paid-in capital (in the case of the Banca Nazionale and the
other three joint-stock banks) or of their fixed property
(Bank of Naples and Bank of Sicily) on condition of
keeping a one-third cash reserve against circulation in
coin and association notes. Their metallic cash might
be invested only in securities payable in coin. The bank
notes were invested with the quality of a legal tender
under certain restrictions. The issue of notes by private
individuals and institutions of any kind was strictly forbidden, and in a few years this mischievous currency was
driven from circulation.
The legislation of 1881, with the provisions discontinuing forced currency, dissolved the association of the banks
of issue. The coin obtained by means of a loan was used
for withdrawing the association notes from circulation. At
the same time the issue of 340,000,000 lire of treasury
notes was decreed (100,000,000 lire in 5-lire notes and
240,000,000 lire in 10-lire notes). First of all, the small
notes of denominations up to 2 lire were replaced by fractional silver currency. The privilege of issuing notes was
to terminate for all six banks at the close of 1889. The
Government was empowered to authorize the banks to
issue notes of the denomination of 20 or 25 lire, as it
thought most expedient. The denomination was fixed by
royal decree in 1883 at 25 lire.
The forced currency was discontinued in 1883. The
law of 1881 provided that the reserve against bank note
circulation should consist exclusively of coin. In pursuance of a royal decree of 1883 at least two-thirds of it had
to be in gold. As a matter of fact, the treasury notes were




218

The

Italian

Banks

of

Issue

placed on a par with gold and silver, as they were redeemable in coin at any time on presentation at the main
treasury of the Kingdom. The continuance of the legaltender quality of the notes of the six banks of issue was
extended by numerous successive enactments. The privilege of issuing notes which, as we have seen, was to terminate at the close of 1889, was prolonged by a law of 1891
to the close of 1892.




219




PART II.—THE BANKS SINCE 1893.
V.—CAUSES OF THE NEW LEGISLATION.

All who had been observing without political or doctrinaire bias the course of government action in Italy with
respect to the banks of issue had urged the necessity of
thoroughgoing reform. The Italian system of banks of
issue was a curious mixture of monopoly and plurality,
which had all the disadvantages and none of the advantages of these systems. The competition of the six banks
that had the exclusive privilege of issuing notes—institutions representing every grade of economic capacity—had
led to an excessive issue of paper currency for the promotion of building speculation in the large cities (especially
in the capital and in Naples), for the support of industrial
undertakings of an artificial nature and necessarily
doomed to failure, as well as of ill-managed credit institutions, and for the purpose of influencing legislation by the
lavish use of money. The institution which was economically and morally most corrupt was the Banca Romana,
which, ill conducted under the papal administration, had
not had a sound existence under the national Government,
and was the veritable poison of Italian credit. Its rottenness was fully revealed at the beginning of 1893 by an
inquiry instituted at the instance of the Chamber of Deputies. Its suppression was inevitable, and as the condition
of the other institutions was not a favorable one, Parliament had to make up its mind to the discussion of a rather




221

N ation.al

Monetary

Commission

radical reform, which was embodied in the act of August
10, 1893.

This act provided for the fusion of the Banca Nazionale
Toscana and the Banca Toscana di credito with the Banca
Nazionale. The institution thus constituted took the name
of the Bank of Italy. The affairs of the Banca Romana
were to be wound up, and so there were left but three
banks of issue—the Bank of Italy, the Bank of Naples,
and the Bank of Sicily. The laws of 1894 a n ( i x^95 declared the two latter banks to be public autonomous
credit institutions under the supervision of the Government, intrusted the liquidation of the affairs of the Banca
Romana to the Bank of Italy, and amended the law
of 1893 in important respects. In spite, however, of
further statutory enactments (1895-96), the banks were
unable to improve their condition materially. Their
troubles were mainly due to two causes. A large amount
of paper, which had been discounted for individuals
and concerns ruined or temporarily embarrassed, remained unpaid, and the banks were obliged to take in
place of what was due them a large quantity of securities
and real estate. Furthermore, as they were not merely
banks of issue, but also mortgage banks, they were compelled, by reason of the continuous and severe agricultural
depression and the crisis in the building trade in some of
the large cities (in particular, Rome), to dispossess many
owners of lands and buildings, and thus to burden themselves with a fresh mass of parcels of ground and houses.
The mortgage business had indeed been delegated, in the
case of each of these institutions, to an officially distinct




222

The

Italian

Banks

of

Issue

administrative branch, but the regular banking department was constantly making fresh advances to this separate administrative branch on current account, and as
these mortgage operations had been continually swallowing up new capital, the aggregate of the amounts thus
advanced constituted a large sum to the credit of the
banking department, on which it could not easily realize.
In the case of the Bank of Naples, for example, an amount
of money nearly equal to its entire free capital (patrimonio) had been gradually absorbed by the realty credit
department, which, nevertheless, was on the verge of bankruptcy. These two categories of bad assets constituted in
the balance sheets of the banks the so-called " immobilized
assets" (partite immobilizzate), and to this were added the
legally no-longer-permissible assets acquired previous to
the law of 1893. The principal aim of the fresh legislation
of 1897 and 1898 was to remove the dangerous consequences of this untenable condition and to remedy it as fast
and as far as possible. The previously initiated liquidation
of the mortgage institutions connected with the three
banks of issue was definitively sanctioned, and arrangements were made for effecting it with the least possible loss
to the banks and the creditors. Every facility was afforded,
also, for the liquidation, or, as it was termed, " mobilization," of the "immobilized assets" that figured on the
balance sheets, especially in the way of accommodations
on the part of the fiscal administration and extensions in
the matter of payments.
In order to secure and facilitate the application of the
new legislative injunctions, energetic men were placed at

39781 0 —-ii




15

223

National

M on et ary

Commission

the head of the institutions. The Government undertook
the task of codifying most of the laws relating to the banks
of issue, and the result was the legal code bearing the date
of October 9, 1900. The duration of the legal-tender
quality of the bank notes was extended year by year, and
the lawmaker made constant use of the opportunities thus
afforded in order to furnish fresh facilities to the banks for
healing the wounds of the past. In the years 1899-1903
further improvements were made in the statutes of the
Bank of Italy and the provisions relating to the other
two banks.
The extraordinary development of industry, especially in
upper and middle Italy, the strides made by commerce, and
the progress in agriculture have in the last few years added
greatly to the riches of the country. Emigration, although
it has shown an unexpected and almost pathological increase, has afforded to the Italians permanently or temporarily settled abroad the means of sending or bringing
home large sums of money, while the expenditure of the
ever-increasing number of foreigners visiting Italy has contributed an important item on the credit side in the international balance of payments. In spite of the increased
expenditure, the financial condition of the Kingdom has
been considerably improved. The better credit of the
State made it possible in 1906 to reduce the rate of interest
on the public debt. This improvement in the economic
and financial state of the Kingdom has naturally meant for
the banks of issue a progressive development of their business and has afforded them the means of making a sounder
selection in their transactions and of effecting more readily




224

The

Italian

Banks

of

Issue

the liquidation of their immobilized assets. Great credit
is due to the men at the head of these institutions, and we
may point especially to the splendid manner in which the
Bank of Italy weathered the financial crisis of 1907.
In spite of the progress thus made, the moment had not
yet arrived, in the opinion of our legislators, for removing
the forced currency of the bank notes, and by the act of
December 29, 1907, its duration was extended to the close
of 1908. On the occasion of the enactment of this law
important measures were framed (among them one raising
the normal maximum of bank-note circulation) in order to
make the legal provisions conform more closely to the
present condition of the banks of issue and the economic
and financial state of the country. These measures were
embodied in the act of December 31, 1907. By the act of
December 24, 1908, the duration of the forced currency
of the bank notes was extended to the close of 1909, and
by the act of December 26, 1909, to the close of 1910. A
fresh revision of the statutes of the banks took place in
1908 and 1909; the act of July 15, 1909, embodied provisions regarding interest-bearing deposits, and finally all
the laws on the banks of issue (with exception of the act
of August 8, 1895, Appendix Q, T.) were codified by the
act of February 3, 1910.
VI.—CHARACTER

AND ADMINISTRATION OF THE BANKS
OF ISSUE.
THE BANK OF ITALY.

The Bank of Italy is a joint-stock company. The shares,
which are registered, are nominally of 800 lire. Their
nominal value was originally 1,000 lire, but they were




225

National

Monetary

Commission

reduced in 1894 to 900 lire and in 1897 to 800 lire. The
amount actually paid in was 700 lire, but, as will be explained later on, the paid-in capital is put down as having
been only 600 lire per share.
The central offices are at Rome. There are numerous
branches, subbranches, "agencies," etc.
At the head of the administration is the director-general, who is assisted by the vice-director-general. They
are elected and retired by the superior council of the bank,
but* they have to be confirmed by the Government.
The superior council (consiglio superiore) is elected in
the following manner: The administrative council of each
branch (sede) appoints two councillors from its midst.
Five additional councillors are chosen by the general
assembly of the shareholders from the midst of the remaining members of the administrative councils of the main
offices or branches.
The director-general is a member of the superior council.
The vice-director-general may attend the meetings, but he
has no vote unless he takes the place of the director-general
when the latter happens to be absent. The superior council, among other important functions, appoints the
employees of the bank on the initiative of the directorgeneral.
The directory (director-general and vice-director-general) and superior council carry on the general administration of the bank. Their management is supervised by the
syndics (sindaci), who are chosen annually by the general
assembly of the shareholders to the number of five.
The regular meeting of the shareholders is held annually
at Rome, and extraordinary meetings are held whenever




226

The

Italian

Banks

of

Issue

it appears necessary, in conformity with certain statutory
provisions.
Each branch has a director, appointed by the superior
council at the instance of the director-general, and
an administrative council (consiglio di reggenza), composed of from seven to twelve (in exceptional cases, fourteen) councillors and of not more than four censors. The
precise number of councillors and censors is fixed by the
superior council.
The councillors and censors are elected for a term of six
years by the general assembly of the shareholders, which
meets for that purpose at the various main offices. Onehalf retire every three years, the general assembly of the
shareholders being therefore required to meet every third
year at each of the main offices. Each branch has
from eight to fifteen discount councillors (the precise
number being fixed by the superior council) elected for a
term of two years, one-half retiring annually. They are
chosen by the administrative council of the main office
from a double list, indorsed by the director-general. The
discount commission is composed of the director, two administrative councillors, and one discount councillor.
Each subbranch (succursale) has a director appointed by
the superior council at the instance of the director-general,
several censors (as many as may be deemed necessary),
appointed by the superior council and confirmed by the
syndics, and from four to eight discount councillors, elected
by the superior council for a term of two years, one-half
retiring annually. The discount commission is composed
of the director and two discount councillors.




227

National

Monetary

Commission

Each agency (agenzia) is under the management of an
agent, appointed by the superior council on the initiative
of the director-general.
THE BANK OF NAPLES.

The Bank of Naples is an autonomous public credit
institution under the supervision of the Government, having its own property or free capital. The central seat of
administration is at Naples.
It has a peculiarly constituted general council (consiglio
generate). This is composed as follows:
(a) The Neapolitan representation, consisting of the
mayor of Naples, the presiding officer of the Council of
the province of Naples, the president of the Neapolitan
Chamber of Commerce, a delegate of the municipal Council of Naples, a delegate of the provincial Council, and a
delegate of the Chamber of Commerce.
(b) A delegate of the Council of the province of Bari
and a delegate of the Chamber of Commerce of the city
of Bari.
(c) A delegate of the provincial Council of each of
the following provinces: Aquila, Avellino, Benevento,
Campobasso, Caserta, Catanzaro, Chieti, Cosenza, Foggia,
Lecce, Potenza, Reggio-Calabria, Salerno, and Teramo.
(d) A delegate from each of the chambers of commerce
in the other provinces of the Kingdom in which the bank
has a main office.
(e) The director-general and the two administrative
councillors appointed by the Government.
The delegates are elected for a term of two years. The
general council has its regular meeting at Naples once in




228

The

Italian

Banks

of

Issue

the course of the first three months in each year, and may
be convened again later in extraordinary session conformably to special statutory provisions. Its functions
correspond in the main to those of the general assembly
of the shareholders of joint-stock banks.
The managing body is the administrative council (consiglio di amministrazione). This comprises the following
members: The director-general, who is appointed by the
Government (by royal decree); three ordinary delegates
and one substituting delegate, who are chosen by the
general council from its midst; and two administrative
councillors, appointed by royal decree (one retiring each
year), who are reeligible. The general secretary of the
bank is appointed by the finance minister from a list of
three persons submitted by the administrative council.
The directors of each of the branches and of the subbranches are appointed by the administrative council on
the initiative of the director-general.
Each branch and subbranch has from eight to twelve
discount commissioners, appointed by the administrative
council (which fixes the number) for one year on the initiative of the director-general. The discount commission
consists of the director and two commissioners.
The bank has a savings institution and a pawn office.
THE BANK OF SICILY.

The Bank of Sicily is an autonomous public credit
institution under the supervision of the Government,
having its own property or free capital. The central seat
of administration is at Palermo.




229

National

Monetary

Commission

It has, like the bank of Naples, a general council (consiglio generate). This body is constituted as follows:
(a) The representation of Palermo, consisting of the
mayor of the city of Palermo, the presiding officer of the
Council of the province of Palermo, the president of
the Chamber of Commerce of Palermo, a delegate of the
municipal Council of Palermo, a delegate of the provincial
Council, and a delegate of the Chamber of Commerce.
(6) The mayors of Messina, Catania, and Girg§nti, a
delegate of the Chamber of Commerce of each of these
cities, and a delegate of the Council of each of the provinces of Messina, Catania, and Girgenti.
(c) A delegate of the Council of each of the provinces
of Caltanissetta, Syracuse (Siracusa)y and Trapani.
(d) A delegate from the Chamber of Commerce of each
of the other provinces of the Kingdom in which the bank
has established a main office.
(e) The director-general and the two administrative
councillors appointed by the Government.
The delegates are elected every second year.
The general council has its regular meeting at Palermo
once in the course of the first three months in each year
and may be convened again later in extraordinary session,
conformably to special statutory provisions. Its functions, as is the case with the Bank of Naples, correspond,
in the main, to those of the general assembly of the shareholders of joint-stock banks.
With respect to its administrative personnel, the Bank
of Sicily is organized in the same manner as the Bank of
Naples. It has an agricultural credit department and a
savings bank




230

The

Italian

Banks

V I I . — T H E SYSTEM OF B R A N C H

of

Issue

BANKS.

The b a n k s of issue are permitted t o maintain branches,
sub-branches, and agencies, t o have correspondents, and
t o m a k e use of banking houses as their representatives in
t h e redemption of their notes.
The branches (sedi) are those offices which are located
in t h e principal cities or which have t h e largest volume
of business. These two conditions usually coincide. The
banks are obliged to maintain a main office a t t h e capital.
The agencies (agenzie) are those offices which have
been established b y t h e b a n k at its own expense a n d are
managed b y its own officials, and whose business it is
to collect bills, to cash the drafts of t h e b a n k and t h e
negotiable paper so-called (vaglia cambiari), and t o redeem
its notes.
The Bank of Italy is obliged to maintain a branch
or a subbranch at t h e capital of each of t h e 69 provinces. I t m a y establish sub-branches in other cities also,
and it has done this t o some extent. In t h e establishment
and abolition of branches and subbranches and in t h e
transformation of sub-branches into agencies t h e action
of t h e b a n k requires t h e sanction of t h e Government,
which is given simply in t h e form of a ministerial order.
In t h e establishment and suppression of t h e agencies t h e
action of t h e b a n k is untrammeled.
The Bank of Naples and t h e Bank of Sicily are a t liberty
to abolish t h e existing branches and sub-branches or t o
establish new ones in t h e capitals of t h e provinces, b u t
the establishment and suppression of such branches can
be effected only b v royal decree, a t the instance of t h e




231

National

Monetary

Commission

administrative council with the consent of the general
council. In the case of the agencies an order of the
finance minister is required in place of a royal decree.
The correspondents are the credit institutions and
private banks which collect bills and cash drafts, etc., for
account of the banks of issue.
These credit institutions and private banks, as well as
the savings banks (as a general thing, in the larger
cities), may, on due notice being given to the Government,
be charged by the banks of issue with the redemption of
their notes. They are invested by the bank of issue with
the power of "representation for redemption" {rappresentanza pel cambio). This takes place usually in those
provinces in which the bank of issue has no offices of its
own belonging to any one of the three categories above
mentioned. In such cases the bank selects a representative, whose place of business is generally the capital of
the province. The bank may, however, have several
representatives in the same province. The banks of issue
may perform mutual services in respect of the redemption
of their notes. The Bank of Naples, for example, represents the Bank of Sicily at a number of places.
The following table gives the statistics of the branch
offices, etc., of the banks of issue. The figures are for
the end of September, 1909.

Bank.

Bank of I t a l y .
Bank of Naples
Bank of Sicily




Branches
(sedi).

Sub-branches
(succursali).

11
12

7

232

69
is
4

Agencies
(agenzie).

Representatives for the
redemption
of notes
(rappresentanze pel
cambio).

22
10
21

35
69

The

Italian

Banks

of

Issue

There are a great many correspondents, each of the
banks having hundreds. They are to be found even in
very small places, and their number is constantly increasing
with the foundation of new cooperative credit associations,
regular credit associations, and private banks.
VIII.—CAPITAL OF THE BANKS OF ISSUE.

The Bank of Italy (joint-stock bank) has a nominal
capital of 240,000,000 lire, the paid-in capital being
180,000,000 lire. The Bank of Naples and the Bank of
Sicily (public credit institutions) have a fixed property
amounting, respectively, to 50,000,000 and 12,000,000 lire.
The nominal capital of the Bank of Italy is divided into
300,000 shares. The paid-in capital amounts actually to
210,000,000 lire; that is to say, 700 lire was paid in for each
share. But in order to make it possible to devote a larger
quota of the net earnings to the improvement of the condition of the bank, which had been seriously compromised by
the unsound management to which we have referred, this
paid-in capital was reduced on the books by 30,000,000
lire, so as to be reckoned at only 180,000,000 lire; that is to
say, the amount paid in for each share is considered to
have been 600 lire instead of 700. It was arranged, however, that the bank, after the expiration of an- interval of
not less than fifteen years, beginning with 1893, if it had
fulfilled its legal obligations, would be empowered to restore
those 30,000,000 lire to its shareholders in annual quotas
not exceeding 6,000,000 lire. But when the time arrived
(1909), it was considered best not to turn over the sum
that was available to the shareholders but to devote it to
an extraordinary reserve fund. (See section XI).




233

National

Monetary

Commission

As the Bank of Naples and the Bank of Sicily had likewise invested part of their funds in insecure loans and
unsafe mortgage operations, and as the figures given above
originally represented in part not actually existing property
but merely the amount due the banking department by
the realty credit department, it was provided that these
two banks should for a term of fifteen years, beginning with
1893, add all their net earnings to their free capital
except what was required to meet their legal obligations,
and this is what was actually done.
I X . — T H E ISSUE OF BANK NOTES.

The three institutions which we have here described have
the exclusive right to issue bank notes, the privilege having
been conferred for a period of twenty years, 1893-1913,
with a conditional extension for ten years.
The chief function of the banks is to issue notes for the
needs of trade. The so-called "normal maximum limit"
of the issue is fixed for the respective institutions as
follows:
Lire.

Bank of Italy
Bank of Naples
Bank of Sicily

660, 000, 000
200,000, 000
48, 000, 000

Total

908, 000, 000

The Bank of Sicily is empowered to issue an additional
10,000,000 lire, which amount, however, has to be devoted
to the assistance of the sulphur industry.
The cash reserve has to be not less than 40 per cent of
the amount of the outstanding notes. The banks are,
however, allowed to exceed the normal maximum limits
under the following conditions:




234

The

Italian

Banks

of

Issue

(a) They may issue up to any amount, provided there
is a cash reserve against the full amount of the excess
above the normal maximum.
(b) They may exceed the normal maximum, provided
there is a 40 per cent covering for the entire issue, on
condition of the payment of a special tax on circulation,
which is levied only on the excess. This tax is onethird of the rate of discount when the excess is not more
than 50,000,000 lire in the case of the Bank of Italy,
15,000,000 lire in that of the Bank of Naples, and 4,000,000 lire in that of the Bank of Sicily. It is two-thirds
of the rate of discount when the excess is not less than
50,000,000 lire and not more than 100,000,000 lire for
the Bank of Italy, between 15,000,000 and 30,000,000
lire for the Bank of Naples, and between 4,000,000 and
8,000,000 lire for the Bank of Sicily. It is equal to the
full rate of discount when the excess is, respectively,
between 100,000,000 and 150,000,000 lire, between 30,000,000 and 45,000,000 lire, and between 8,000,000 and
12,000,000 lire.

When the excess is above 150,000,000, 45,000,000, and
12,000,000 lire, respectively, an extraordinary tax of 7 ^
per cent is levied on the additional amount over and
above these figures. This extraordinary tax is also imposed in case the entire 40 per cent cover is not provided, even when the normal maximum limit is not exceeded. It must be borne in mind that so much of the
circulation as corresponds to the cash cover is not taxed.
It has been sought in this way to maintain the necessary elasticity of the bank-note circulation and to prevent




235

National

Monetary

Commission

the danger of an excessive issue for the purposes of speculation.
As the banks are under the obligation to make advances to the State (at the present time, up to the sum
of 125,000,000 lire), the corresponding issue of notes is
not included in the normal maximum issue, and a cash
cover of only one-third is required.
The cash cover, or metallic reserve, must consist, up
to at least three-fourths, of gold coin or gold bullion,
and the remaining one-fourth must be made up of coins
of the Latin League nine-tenths fine and of subsidiary silver
currency (this last not to exceed 2 per cent of the total
reserve). In place of metal, however, the following securities, payable in gold or in silver coin of the Latin League
(nine-tenths fine) may be partially substituted: Foreign
bills of exchange; foreign treasury bills; certificates of
sums deposited in current account in foreign banks. The
quota of such substituted funds shall not exceed 11
per cent of the total cash reserve in the case of the Bank
of Italy, 15 per cent in that of the Bank of Naples, and
15 per cent in that of the Bank of Sicily. It is further
provided that the above-mentioned certificates of deposit
shall never exceed 3% per cent of the legal circulation.
The cash cover, or metallic reserve, must under no
circumstances be allowed to fall below the following
figures:
Lire

Bank of Italy
Bank of Naples
Bank of Sicily

400,000, 000
120,000,000
28,000,000

This metallic reserve must be kept absolutely separate
from the other assets of the bank, and the State is to
exercise a special supervision over its maintenance.




236

The

Italian

Banks

of

Issue

This reserve guarantees the bank notes, but inasmuch as
the holders of these notes can in no way derive any
benefit from it because there can be no redemption out
of this reserve, either at present or in future time,
as will be explained later on, they have been accorded
a preferred claim over the following assets of the bank:
The gold coin, gold bullion, and legal silver coin in
the possession of the bank not included in the abovementioned minimum metallic reserve nor set aside as
a reserve against sight liabilities; the Italian treasury
bills acquired by the banks and other securities issued by
the Italian Government or guaranteed by it; the foreign
bills not reckoned as part of the metallic reserve; sums
due to the bank on account of loans on collateral and
secured by such collateral, including sums due from the
Government on account of advances and guaranteed by
securities deposited by the Government; domestic bills of
exchange as much as may be needed to make up the
required sum.
The following will serve as an illustration:
The Bank of Italy had on September 30, 1909, a total
circulation of 1,467,167,300 lire. Up to the sum of
400,000,000 lire these bank notes were secured by this
minimum metallic reserve. There remained, therefore,
1,067,167,300 lire. For this there was the following
security:
Lire.

Gold and legal silver coin
Italian treasury bills and other government obligations or
securities guaranteed by the Government
Foreign bills of exchange
Sums due on account of loans
Domestic bills of exchange
Total




689,194, 527
214,137,718
1, 838,090
78, 953,004
83,043, 961
1,067, 167,300

237

National

Monetary

Commission

These 1,067,000,000 lire represent the assets in regard
to which the holders of the notes had the above-mentioned
preference on September 30,1909. Of course, as has been
seen, the above-mentioned 400,000,000 lire of the metallic
reserve are a security for the notes, but it is certain that
the actual circulation of the Bank of Italy in peaceful times
will never sink below 400,000,000 lire, and consequently
these 400,000,000 lire of bank notes will never be presented
for redemption, even if there should be a redemption of
notes. In case of war the Government will appropriate
this metallic reserve and make forced currency out of a
corresponding amount of bank notes.
The banks are not obliged to redeem their notes so long
as the treasury notes are irredeemable. They may, if
they choose, redeem them in treasury notes (as is usually
done), or they may, if they so desire, redeem them in coin,
making use of the metallic money which they may have
on hand over and above the minimum reserve, but in
that case they have the right to exact from the holder of
the notes the premium on coin set on that day at the
nearest exchange.
The treasury notes are issued in denominations of 5,
10, and 25 lire, but the 25-lire notes are now being withdrawn from circulation. The total issue is not permitted
to exceed the sum of 465,000,000 lire. The total of the outstanding notes on September 30,1909, was 433,611,895 tireThis national paper money is irredeemable; it is a currency
with forced circulation. There is, however, a guaranty
fund, consisting of a gold reserve that may not be touched,
which must not be less than 151,250,000 lire. It has




238

The

Italian

Banks

of

Issue

recently exceeded this sum, having amounted on September 30, 1909, to 175,175,805 lire.
The notes of the banks are restricted to the denominations of 50, 100, 500, and 1,000 lire.
The aggregate of the outstanding notes of these legal
denominations on September 30, 1909, was as follows:
Denominations.

Lire.

1,000 lire
500 lire

__

100 lire
50 lire

_

271,138,000
307,888, 000
73o,381,800
630,816,600

Per cent.

1398
IS- 87
37. 64
32. 51

1,940,224,400

Total

At the same date the three banks of issue held notes to
the aggregate amount of 709,400,000 lire.
The form of the notes in each denomination is prescribed by an ordinance of the minister of finance, as well
as the number of notes that may be turned out at each
printing. The manufacture of notes and the destruction
of old or mutilated ones are carried on under the constant
supervision of the finance minister. The manufacture is
so arranged that no bank note can be turned out complete
without the participation of the bank of issue and the
Government in the operation. The notes that are not
placed at the disposal of the banks are kept in a special
treasury, and every withdrawal of notes from this treasury
for the sake of putting them in circulation, as well as
every deposit of notes not required for circulation, must
be effected under the supervision of the state inspectors.

397810—11




16

239

National

Monetary

Commission

THE LEGAL-TENDER QUAUTY OF THE
THEIR

MUTUAL REDEMPTION

BANK NOTES AND

AMONG THE BANKS OF

ISSUE.—DURATION OF THE PRIVILEGE OF ISSUE.

Bank notes are a legal tender, that is to say, they are a
legal tender in those provinces in which the bank has
either a branch (sede), a subbranch (succursale), or an
agency (agenzia), or else a representative charged with
the redemption of the notes.
At the present time the notes of all three banks of issue
are a legal tender throughout the whole kingdom. «
By means of a voluntary agreement, which has to be
sanctioned by the Government, each of these institutions
may bind itself to put again in circulation the notes of
another institution in making its payments.
Inasmuch, however, as, in accordance with the law and
by reason of the legal-tender quality, each institution is
obliged to accept the notes of either of the other institutions, and as, in case one institution makes use in its payments of the notes of another, a certain amount of such
notes may remain in its treasury, it has been found necessary to regulate the mutual redemption of notes (the
so-called " riscontrata ") between the banks of issue. This
duty was legally reserved for the Government, which has
issued the following regulations:
' On the ioth, 20th, and last day of each month one
bank informs the other of the amount of the notes and
other sight paper (as, for example, drafts) of that other
institution it has in its possession. After the lapse of five
days from the date of this communication the latter (the
debtor bank) has the right to take back its own notes,




240

The

Italian

Banks

of

Issue

drafts, etc., in exchange for the notes, drafts, etc., of the
former (the creditor bank) and other instruments that
may legally serve for redemption, as, for example, national
paper currency or coin. If it is not in a position to get
back all its notes and other sight instruments in this manner, part remains in the hands of the creditor bank, which
charges the amount to the debtor bank in a special account
current, and may demand interest at a rate not exceeding
three-fifths of the official rate of discount. The liquidation of the account is effected at the end of June and at the
end of December of each year.
So long as the bank notes continue to be legal tender
the debtor bank can not be compelled in the exchange of
the notes and the liquidation of the account current to
hand in, in addition to the notes of the creditor bank, an
amount of other instruments, that may legally serve for
redemption, in excess of one-twentieth of its legally permitted circulation. The debtor bank is allowed to discharge the remainder of its obligations with bills of exchange having no more than fifteen days to run and with
government bonds.
But inasmuch as all payments into and from the
national treasury throughout the Kingdom are made
through the Bank of Italy, and as this institution therefore
accumulates a large volume ol notes of the other two
banks that have been used in the payment of taxes, a provision has been enacted in favor of these institutions, limiting the amount which they may be called upon to take
back to the volume of the notes of the Bank of Italy which
they happen to have in their possession.




241

National

Monetary

Commission

The duration of the legal-tender quality of the bank
notes is to terminate at the close of 1910 but a further
prolongation is anticipated.
Those of the institutions which at the expiration of the
twenty-year privilege of the issue of bank notes (August
10, 1913) will have fully discharged their legal obligations
will have the privilege extended to the close of 1923. Two
years before the expiration of the present term the condition of the banks is to be investigated by a commission,
which shall ascertain whether it is such as to satisfy in
every way the legal requirements with respect to the prolongation of the privilege. This commission shall be composed of two members chosen by the Senate and two by
the Chamber of Deputies and of three members appointed
by decree of the Government with the approval of the
cabinet.
X.—DISCOUNTS,

LOANS,

DEPOSITS.—DRAFTS, CHECKS,

ETC.—THE RATE OF DISCOUNT.

In addition to the issuing of notes, the banks of issue
are allowed to engage in the following kinds of business:
(a) The discounting of bills and checks having no
more than four months to run and bearing at least two
signatures, treasury bills, warrants of the public warehouses, and coupons of the securities on which loans may
be made.
(b) The making of advances for a term not exceeding four or six months (according to the nature of the
securities furnished as collateral) on government bonds,




242

The

Italian

Banks

of

Issue

treasury bills, a and securities guaranteed by the State,
on debentures of realty credit banks, securities issued
or guaranteed by foreign governments and payable in
gold, on gold and silver coin, on silk, on orders for
merchandise (obligations to deliver a certain quantity
of a particular kind of goods at a specified date), on
warrants of the public warehouses, etc. The loans on
securities may, according to the nature of the collateral,
represent either the full nominal value or a fraction
thereof—nine-tenths > four-fifths, three-fourths, two-thirds,
or one-half.
(c) The purchase and sale of foreign bills and drafts
payable in gold with at least two good signatures and
having three months to run at the utmost, as well as
the issue of drafts on foreign countries. But as such
business serves mainly for the accumulation of coin for
the reserve and for effecting the monetary transactions
of the Government, the banks are permitted to engage
in it only to the extent that it is necessary for such purposes. In any case the aggregate amount involved in it,
as well as in foreign accounts current, is not, as a regular
thing, to exceed the twentieth part of the maximum permissible note circulation. A temporary excess may be
authorized or a contraction decreed by the finance minister if the note circulation with 40 per cent reserve
exceeds the normal maximum circulation or if the state
of the foreign exchanges seems to call for it.
All other property, immovable as well as movable, especially such as the banks may acquire in the payment
a
If these have a very long time to run, t h e term of the loan may be
prolonged to as much as two years.




243

National

Monetary

Commission

of debts, is to be sold within two years. The banks are,
however, permitted to invest such of their available resources as are not to go to the surplus in government
bonds or in securities guaranteed by the State. The
amount of such investments shall not exceed 75,000,000
for the Bank of Italy, 30,000,000 for the Bank of Naples,
and 8,000,000 for the Bank of Sicily. Some special laws,
however, have excluded from this restriction certain government securities and the securities of several mortgage
and agricultural credit institutions.
The banks are not permitted to have any part of their
assets in accounts current without security or to make
loans on real estate. As was stated above, the affairs of
the realty credit institutions connected with the banks
of issue are being wound up.
The banks are permitted to take current-account deposits and pay interest on them. When the amount of
these deposits exceeds 200,000,000 lire in the case of the
Bank of Italy, 80,000,000 in that of the Bank of Naples,
and 25,000,000 in that of the Bank of Sicily, the bank-note
circulation shall be reduced, the amount of the reduction
being one-third of the amount by which the deposits exceed these limits. The rate of interest shall not exceed
one-third of the rate of discount. The finance minister
may, however, authorize the banks to allow a higher rate,
which shall not exceed three-fourths of the rate of interest
allowed on deposits in the postal savings banks.
The banks also receive simple non-interest-bearing deposits, and may draw banking assignments on foreign
banking institutions for their own account or for account
of a third party, issue, etc.




244

The

Italian

Banks

of

Issue

An interesting feature of the business of these institutions is the issue of certificates of deposit having the character of negotiable paper (vaglia cambiari), which are
extensively used, lending themselves especially to the
transfer of sums from one place to another. They are
made out for the depositor for any amount he may desire,
and are made payable to him or to a third party designated by him. They may be transferred from one holder
to another by a simple signature or by indorsement.
Such drafts are payable at every branch or subbranch
of the bank or at the office of any correspondent and
cease to be valid only at the expiration of five years.
Mention should be made of the following instruments
issued by the Bank of Naples and the Bank of Sicily as
certificates of interest-bearing and non-interest-bearing
deposits:
(a) Certificate of credit. This is handed out to a depositor on his being credited with a deposit of at least 50
lire and is transferable by signature or indorsement.
(6) Small cash order. This is a certificate of credit
issued for a sum of less than 50 lire. It is made out by
the depositor himself and certified by the bank and is
transferable in the same way as the preceding.
(c) Cash order noted in fede. If the depositor wishes to
make use of the sum certified in the certificate of credit
for making several successive payments, the document is
converted into one that is not transferable, a madre-fede,
which assumes the character of a pass book. The instrument which the depositor makes out in order to dispose ofpart of his credit balance is presented with the madre-fede




*45

National

Monetary

Commission

and certified by the bank and is known as a cash order
noted in fede because of the entry that has to be made
on the madre-fede. The cash order (polizza) is transferable in the same way as the certificate of credit.
The Bank of Naples has authorized its correspondents
to draw banking assignments upon it up to an aggregate
sum previously agreed upon, for which security is furnished. They are payable at every branch and subbranch of the bank, but must be presented for payment
within fifteen days. This shorter term distinguishes this
instrument from the above-mentioned negotiable paper.
The Bank of Italy has also authorized its correspondents under like conditions to make out such banking
assignments, but they are to be drawn only upon a specified branch or subbranch and they must be presented
within a specified short time. This instrument is therefore distinguished from the above-mentioned draft in a
double manner—by being made payable at a specified
place and within a short time.
All demand liabilities are to be covered by a cash
reserve amounting to 40 per cent of their aggregate
amount. The composition of this reserve shall be the
same as that of the reserve against bank-note circulation.
In order to prevent the abuses of former times the Government was empowered to make agreements with the
three institutions and to prescribe uniform norms for the
compilation of the lists of individuals and firms to whom
credit is granted (the maximum amount being entered),
for the mutual exchange of these lists or the partial communication of their contents, for the choice of correspondents, etc.




246

The

Italian

Banks

of

Issue

The institutions receive for safekeeping (or in trust)
securities, objects made of the precious metals, and money
for account of the Government, individuals, and stock
companies (first installment of the capital paid in at the
organization).
The institutions may, conformably with the norms
prescribed by royal decree, establish and operate clearing
houses (stanze di compensazione). This has been done
in some of the large cities (Florence, Genoa, Milan, Naples, Rome, Turin).
So long as the bank notes are legal tender, the normal
rate of discount, as well as the rate of interest on loans,
must be the same for all the banks of issue, and they
can not be altered without the sanction of the Government. The Government is empowered to institute a
change simultaneously for all three institutions. These
are permitted, however, in certain cases to lower the
rate of discount, although by not more than i per cent.
They may do so in the case of loans to people's banks,
agricultural loan institutions, banks established for the
promotion of the mining industry, and discount banks
that fulfill certain legal requirements, such as the promotion of the retail trade and the discounting of the warrants of the public warehouses. They are empowered
to do the same in the discounting of warrants issued by
the public warehouses against deposits of silk, sulphur,
and lemons and oranges and preparations made from
them. This discount is termed " sconto di favore " or preferential rate. The aggregate sum applicable to such
transactions is limited to 100,000,000 lire for the Bank of
Italy, 30,000,000 for the Bank of Naples, and 9,000,000
for the Bank of Sicily.




247

National

Monetary

Commission

In addition to this, when the aggregate circulation of .
notes is below the normal maximum, the banks of issue
are allowed to discount below the normal rate the promissory notes of mercantile firms and banking houses of
the first rank which have not over three months to run.
This is termed sconto a saggio ridotto or reduced rate discount. It is not permitted to fall below 3 per cent.
Changes in the rate are to be made according to the state
of the market on the application of the banks by decree
of the minister of finance. This reduced rate can not be
legally obtained in the case of the renewal of promissory
notes in whole or in part, or in the case of promissory
notes put forth for the liquidation of debts created by
previous notes. The decisions of the discount commission
in regard to these promissory notes must be by an absolute majority of the members, and a special bookkeeping
has to be provided for this business. The notes thus
discounted must be kept in a special portfolio, so that
they shall be absolutely apart not only from the notes
discounted at the normal rate, but also from the "preference" notes of the people's banks, agricultural loan
institutions,etc., in order that they may be under the
special supervision of the Government.
There are thus three rates of discount—the normal or
official rate, the preferential rate {sconto di javore) and the
reduced rate {sconto a saggio ridotto).
XI.—THE

SURPLUS

(FONDO

DI

RISERVA,

MASSA

DI

RISPETTO) .

In the case of the Bank of Italy the surplus is to be
equal to one-fifth of the nominal capital. It is constituted by setting aside one-twentieth of the yearly net




248

*

The

Italian

Banks

of

Issue

earnings. When the yearly net earnings exceed 5 per
cent of the paid-in capital, 20 per cent of such excess is
taken and assigned to the surplus.
When the amount of the surplus shall in this manner
have attained to the legal requirement, the general assembly of the shareholders may resolve that an additional
part of the net earnings shall be set aside for. the accumulation of special surplus funds for particular purposes.
The funds thus constituted (a part of the surplus is still set
aside as security for the operations of the mortgage department, now in process of liquidation) are invested in government obligations or in securities guaranteed by the
Government.
An " extraordinary surplus " (riserva straordinaria) was
constituted out of the profits realized in the liquidation^
the " immobilized assets " and the sums that had been set
aside for the purpose of covering any incidental losses that
might be incurred in such liquidation. A part of the
interest on this surplus for the ten years 1914-1923 is to
be turned over to the shareholders as an indemnity for
the lowering of the paid-in capital mentioned above.
The Bank of Naples and the Bank of Sicily have no*
shareholders, and the yearly net earnings are, therefore,
devoted to some extent to public purposes and mainly to
the creation of a surplus, which has already attained to a
very respectable sum. In the case of these two institutions, inasmuch as they have no shareholders but own
their capital outright, the distinction between the property
which constitutes their regular capital and the surplus is.
of minor importance. In their case the surplus is in
reality merely a distinct part of their property in their
bookkeeping.




249

National

Monetary

Commission

X I I . — T H E BANKS OF ISSUE IN THEIR RELATIONS TO
THE STATE.—TAXES.—THE GOVERNMENT'S SHARE IN
THE PROFITS.—STATEMENTS.

The banks of issue are obliged to advance money to
the Government at the rate of interest of i % per cent net,
government bonds and treasury bills being deposited
with them as security. The maximum amount of these
advances is fixed at 115,000,000 lire for the Bank of Italy
and 10,000,000 lire for the Bank of Sicily. On account of
its former unfavorable condition, the Bank of Naples was
freed from this obligation.
The Bank of Italy is furthermore obliged, on the demand
of the minister of finance, to advance to the National Depdsit and Loan Institution {Cassa del Depositi e Prestiti)
cash sums up to 50,000,000 lire at a rate of interest not
exceeding 3 per cent, government bonds or other obligations
guaranteed by the Government being given as security.
The receiving and disbursing of the public moneys
throughout the whole extent of the Kingdom has been
intrusted to the Bank of Italy since February 1, 1895.
The bank furnished as security government bonds to the
value of 90,000,000 lire.
The supervision over the banks of issue rests with
the ministry of finance. For this purpose the ministry
maintains a central bureau under an inspector-general
and a permanent commission. The former discharges
the actual duties of supervision. An inspector is delegated by the Government to attend the meetings of the
general assembly of the shareholders and the superior
council of the Bank of Italy and of the general and ad-




250

The

Italian

Banks

of

Issue

ministrative councils of the Bank of Naples and the Bank
of Sicily, and is empowered to interpose his veto against
any resolution considered by him illegal, a report being
submitted by him to the finance minister, with whom the
ultimate decision rests. It is his business to report directly
concerning all resolutions, even those against which he has
not interposed his veto, and on the strength of his report
the minister of finance may within five days suspend
and finally annul all illegal resolutions irrespective of
whether the inspector has interposed his veto or not.
The resolutions adopted at the meetings of the managing bodies must be communicated to the minister
of finance by the director-general within two days.
The finance minister orders periodical (triennial) and extraordinary examinations of the cash on hand, the reserve,
the circulation, and the stock of bills and promissory
notes, in particular the foreign bills and the notes that
have been discounted at reduced rate (saggio ridotto).
The central bureau exercises a general supervision over
the administration and over the nature of the business transactions with respect to legal requirements. It
supevrises the business of the Bank of Italy in the
receiving and disbursing of public moneys. The permanent commission draws up legal opinions. for the
benefit of the Government concerning important questions relating to the bank laws and their execution and
the administration and inspection of the banks. This
body consists of four commissioners appointed by the Senate from its midst, four commissioners appointed by the
Chamber of Deputies from its midst, and five delegates




251

National

Monetary

Commission

of the Government. The delegates of the Government
are: The president or a member of the council of state,
the president or a member of the chamber of audit, the
director-general of the treasury, the inspector-general of
the banks of issue in the ministry of finance, and the
director-general of the credit department in the ministry
of commerce.
The banks are subject to the following taxes and dues:
(a) The general personal-property tax.
(b) The dues in connection with demand liabilities and
loan transactions.
(c) An ordinary tax on circulation levied upon the
amount of notes outstanding (taking the average for the
year) below the normal maximum. Of this amount, however, that portion which corresponds to the sum of the
reserve and the advances to the Government is not subject to the tax. In other words, so much is to be deducted from the total circulation. With the discharge of
their obligations in the matter of the progressive liquidation of their real estate assets and such investments as
were no longer permissible, the banks had the benefit
of a gradual reduction of this tax on circulation, which
at first was i per cent of the average amount of notes
outstanding (with the above-mentioned deduction) and
which came down in 1909 to the minimum of onetenth of 1 per cent, the immobilized assets having
ceased to exist.
(d) A special and an extraordinary tax on the amount
of notes in circulation in excess of the normal maximum
(or the amount not covered by the prescribed reserve of




252

The

Italian

Banks

of

Issue

40 per cent), as described in detail in a preceding section.
Here likewise the amount corresponding to the reserve is
exempt from the tax.
(e) A sort of penal tax on transactions not sanctioned
by the law, amounting to three times the rate of discount
or of interest involved in the business in question.
(/) Inspection fees, designed to reimburse the Government for the expense of supervision. The annual sums
paid by the banks are at present as follows: Bank of
Italy, 70,000 lire; Bank of Naples, 21,000 lire; Bank of
Sicily, 5,000 lire.
(g) The Bank of Italy pays the regular transfer tax on
its shares when they change hands, and the Bank of
Naples and the Bank of Sicily, as permanent institutions
owning their own capital, have to pay mortmain dues,
or rather, taxes.
The State receives furthermore (since January 1, 1909),
as its share of the profits of the banks of issue, one-third of
the yearly net earnings, if these are in excess of 5 per cent
and below 6 per cent, and if the net earnings exceed 6 per
cent, one-half of such excess in addition. It is to be noted
here that the determination of the percentage of the net
earnings of the Bank of Italy relatively to the capital is
to be made with reference only to the paid-in capital and
with deduction of a definite portion assigned to the pension fund in behalf of the employees. In the case of the
Bank of Naples and the Bank of Sicily the percentage of
the net earnings is reckoned with reference to the aggregate amount of their free capital and the surplus, as the
latter is merely a separately reckoned part of the former.




253

National

Monetary

Commission

On the tenth, twentieth, and last day of each month
the banks have to send to the ministry of finance a
detailed statement of their condition. The form of
the statement is prescribed by royal decree. The statements are all published succinctly in the official organ of
the Government and those that appear at the end of the
month are given in full to the public by the ministry of
finance in a special bulletin. This bulletin contains also
the monthly reports concerning the amount of bank notes
issued and redeemed, the volume of the discount and loan
transactions at each of the branches, the exchange of notes
between the banks, the treasury notes, etc.
XIII.—STATISTICS.
Condition of the banks of issue on December JI, 1897\ and September 30, 1909

1897.
Dec. 3i__

1909.
Sept.3o__

Bank of Italy
Bank of Naples
Bank of Sicily

180. 0 4 3 - 6

Bank of Italy
Bank of Naples
Bank of Sicily

180. 0 4 8 . 0 1,467.2
50. 0 n - 5 3 8 6 . 0
12. 0 8 . 0
87.1

65.0

3-9

12.0

5-o

789.2
238.8
58.2

88. 1 1 3 0 . 0
41. 0 31-7
22.3
13.5
134. 2
55-5
29.8

Invested in securities.c

Discounts & and loans.

Reserve against circulation and demand liabilities.0

Time liabilities.

Demand liabilities.

Circulation.

Bank.

Deposits
and other liabilities

Surplus.

Date of
statement.

Paid-in capital or fixed
property.

[In millions of lire.]

4 4 5 - 6 195. 5 120. 2
116. 1 7 8 . 4 75- 2
3 8 . 2 33- 4 1 3 . 3

7 9 - 4 1,142.9 503. 7 173. 1
3 2 . 7 2 8 1 . 5 146. 4 8 3 . 5
12. 9
69. 1 6 3 . 3
9 9

0 Including foreign bills and securities and credit balances in foreign institutions.
& Exclusive of foreign bills, which are reckoned in the reserve.
c Exclusive of foreign securities, which are reckoned in the reserve.




254

Italian

Th

Banks

of

Issue

Cash reserve of the banks of issue.
[In millions of lire.]

Date of statement.

Gold.

Bank.

Bank of Italy_ _
]5ank of Naples
Bank of Sicily..

D e c . 3 1 , 1897

300. 2

Rate of discount

40. 4

61.6

10. s

60. 1

35- 2

1.3

i-3

947. 7

107.8

87.4

195- 9
56. 0

Bank of I t a l y . _
Bank of Naples
Bank of Sicily..

S e p t . 30, 1909 •

Foreign
bills and
securities and
Silver
credit
.900 fine. balances
jin foreign
institutions.

17-4
4. 2

45- 2
8.9

of the banks of issue.
Special r a t e .

D a t e of
statement.

Normal
rate.

Bank.

S c o n t o di f a v o r e .

Maximum.

D e c . 3 1 , 1 8 9 7 . _ B a n k of I t a l y
B a n k of N a p l e s
B a n k of Sicily
Mar. 31, i9o8__

Minimum.

5
5
5

AVA

_ _
__ _

4K
AXA

4
4
4

B a n k of I t a l y . __ ___
B a n k of N a p l e s
B a n k of Sicily

5
S
5

4
4
4

4
4
4

3978I0—II—17




255

S c o n t o a saggio
ridotto.
Maximum.

4K
4K

Minimum.

4K

4
4
4

3K

3rA




Text of the Law Relating to the Banks of
Issue and the Circulation of
Bank Notes in Italy




257




CONTENTS.
Page.

Royal decree
Title I.—Issue of notes and other obligations
Title II.—Circulation
Section I.—Limit of circulation
II.—Exchange of notes
III.—Reserve
IV.—Circulation tax and participation of the State in the
profits of banks of issue
Title III.—Advances to the treasury
Title IV.—Operations

261
263
265
265
266
267

Section I.—Discounts
II.—Advances
III.—Purchase and sale of bills of exchange, drafts, and
assignments on foreign countries

277
280

IV.—Direct investments
V.—Deposits in current accounts
VI.—Issue of customs certificates, and provincial revenue
service
VII.—Provincial service of the Royal Treasury
VIII.—Special operations of the Bank of Naples: Savings
branch, pawn office, custody of remittances and
savings of Italian emigrants abroad
IX.—Agrarian credit and savings branch of the Bank of
Sicily
X.—Other regulations
Title V.—Mutual redemption of notes among the several banks

284
287

Title VI.—Liquidation of the Banca Romana

299




259

273
277
277

283

287
289

290
293
295
298

National

Monetary

Commission

Title VII.—Liquidation of realty credits of banks of issue
Section I.—Special regulations for the credit foncier or realty
credits of the former Banc a Nazionale nel Regno
and t h e Bank of Sicily
II.—Special regulations for the realty credits of the Bank
of Naples
III.—Regulations common to the realty credit administrations of the three banks
Title VIII.—Supervision of circulation and banks of issue
Section I.—General regulations
II.—Permanent commission
III.—Permanent supervision

Page.
301

301
305
311
318
318
318
321

IV.—Periodical and extraordinary inspections
Title IX.—General regulations

325
329

Title X.—Penalties
Title XI.—Temporary regulations

331
334

APPENDICES.
I.—Royal decree, October 10, 1895, No. 627, fixing the requirements for the admission of bills of exchange on foreign
countries and credits in current accounts abroad as part of
the reserve of banks of issue
II.—Royal decree, October 25, 1895, No. 639, authorizing the banks
of issue to discount on bills of exchange bearing first-class
signatures at less than the normal rate
III.—Royal decree, February 9, 1908, No. 62, regulating t h e discount b y banks of issue of bills issued b y the obligatory
"Association" for the Sicilian sulphur industry to the Autonomous Bank of Mining Credit for Sicily




260

336

340

343

TEXT OF THE LAW RELATING TO THE BANKS
OF ISSUE AND TO THE CIRCULATION OF
BANK NOTES IN ITALY.
ROYAL DECREE.
VICTOR EMMANUEL III,

BY THE GRACE OF GOD AND THE

W I L L OF THE NATION, KING OF ITALY.

By virtue of the power conferred upon the Government
by article 5 of the law of December 24, 1908, No. 723, to
collect and publish by our decree in a new text the whole
body of laws governing banks of issue and the circulation
of bank notes; and
In pursuance of the Text of the Law relative to the
banks of issue and to the circulation of bank notes, approved by Royal Decree, October 9, 1900, No. 373; and
In pursuance of the laws of February 1, 1901, No. 24;
July 7, 1901, No. 334; July 7, 1902, No. 290; December
27, 1903, No. 499; June 25, 1905, No. 261; July 7, 1905,
Nos. 349 and 350; March 29, 1906, No. 100; June 25, 1906,
No. 255; July 15, 1906, Nos. 333, 383, and 441; December
31, 1907, No. 804; July 2, 1908, No. 320; July 5, 1908,
Nos. 351, 388, and 404; July 12, 1908, No. 444; December
24, 1908, No. 423; July 15" 1909, No. 492; and
With the consent of the banks of issue; and




261

National

Monetary

Commission

In pursuance of the results of the meetings held February I I , 12, 13, and 16, 1909, of the subcommittee of the
permanent committee for the supervision of the circulation and the banks of issue; and
In pursuance of the report of the aforesaid permanent
committee; and
With the consent of the council of state;
With the consent of the council of ministers; and upon
the proposal of our secretary of state for the treasury;
We have decreed and do hereby decree:
That the attached Text of the whole body of law regarding banks of issue and the circulation of bank notes
be, and is hereby, approved.
We hereby command that the present decree, sealed
with the State seal, be placed in the official compendium
of the laws and decrees of the Kingdom of Italy, binding
upon all the persons whose duty it is to observe it to enforce
the observation thereof.
Given at Rome on this 28th day of April, 1910.
VICTOR EMMANUEL.
LUZZATTI.
TEDESCO.

Witness the keeper of the seals:
FANI.

(This present decree was published in the Official
Gazette of the Kingdom, May 27, 1910, No. 123.)




262

Law

Relating

to Banks

of

Issue

TEXT OF THE LAW.
TITLE

I.—ISSUE

OF NOTES

AND

OTHER

OBLIGATIONS.

ARTICLE i.
[Articles 1,2, and 24, law of August 10, 1893, No. 449. Article 7 of agreement with t h e Bank of Italy, October 30, 1894, approved b y royal decree
December 10, 1894, No. 533 (appendix to the law of August 8, 1895,
No. 486). Articles 1 and 21 of agreement with t h e Bank of Italy, November 28, 1896, approved b y royal decree December 6, 1896, No. 517
(Appendix A to law of January 17, 1897, No. 9). Article 17, Appendix
B, and Article 15, Appendix C, to previous-named law. Article 14,
law of March 3, 1898, No. 47.]

The right to issue bank notes or other equivalent
obligations payable to bearer at sight is granted for a
period of twenty years from August 10, 1893, to the
following institutions:
The Bank of Italy, with a nominal capital of 240,000,000 lire, divided into 300,000 personal shares of 800
lire each;
The Bank of Naples;
The Bank of Sicily.
Two years before the expiration of the aforementioned term a commission composed of seven members,
of whom two are to be elected by the Senate, two by
the Chamber of Deputies, and three appointed by royal
decree with the consent of the Council of Ministers, shall
proceed to an examination of the condition of the three
banks of issue with a view to certifying their exact
fulfilment of the requirements imposed by law.
The said commission shall complete its labors and
make a report within six months.
If, upon such examination, it shall appear that said
requirements have been fulfilled, the privilege above
named shall be extended until December 31, 1923.




263

National

Monetary Commission
r,

A R T I C L E 2.
[Article 14, law of April 30, 1874, No. 1920. Article 19, law of April 7,
1881, No. 133. Article 1, law of August 10, 1893, No. 449. Article
2, Appendix T to law of August 8, 1895, No. 486.]

The banks authorized to issue notes are empowered
to establish branches (sedi), subbranches (succursali), or
agencies (agenzie) in any Province in the Kingdom under
the conditions of their respective charters. They must,
however, maintain representative headquarters in the
capital.
ARTICLE 3.
[Article 7, law of August 10, 1893, No. 449. Article 10, Appendix I to
law of July 22, 1894, No. 339.]

The Bank of Italy, the Bank of Naples, and the Bank
of Sicily are authorized to issue notes of the denominations of 50 lire, 100 lire, and 1,000 lire.
A R T I C L E 4.
[Article 9, law of August 10, 1893, No. 449.]

In the manufacture of notes of the three institutions,
the State and each one of them, respectively, participate,
so that neither the State nor the institution alone may
manufacture an entire note.
The rules for the manufacture of notes, for their replacement when they shall be worn out or damaged,
and for their cancellation and destruction, are determined by a regulation approved by royal decree. The
same decree states the amount of notes to be allowed
to each institution as an initial working fund, and establishes rules to control the use of same. a
a Royal decree of Oct. 30, 1896, No. 508, modified b y royal decree of
Mar. 7, 1907, No. 73.
264




Law

Relating

to Banks

of

Issue

The forms, denominations, and characteristics of notes
to be manufactured are fixed by decree of the minister
of the treasury.
The expenses of manufacture of notes shall be met by
the institutions.
The manufacture and the supplying of notes shall
involve the State in no liability either to the public or
to the banks.
ARTICLE 5.
[Article 11, paragraph 2, law of August, 1893, No. 449.]

Promissory notes, bills of exchange, banking assignments, and certificates of credit payable at sight in all
the offices of each institution must be personal.
TITLE
SECTION

II.—CIRCULATION.

I.—Limit of circulation.
ARTICLE 6.

[Law of December 31, 1907, No. 804 (Appendix A).]

The maximum normal limit of circulation of the banks
is fixed at 908,000,000 lire, divided as follows:
Bank of Italy
Bank of Naples

Lire.
666, 000, 000
200, 000, 000

Bank of Sicily

48, 000, 000

The privilege of the Bank of Sicily to extend the
normal limit of its circulation up to a further 10,000,000
lire is confirmed, for the exclusive purpose of making
advances on certificates of deposit and granting preferential rates of discount on warrants in its dealings with
the sulphur industry, under article 22 of the law of July
15, 1906, No. 333, and the law of June 6, 1907, No. 286.




265

National

Monetary

Commission

ARTICLE 7.
[Article 2, law of August 10, 1893, No. 449. Article 2, law of February
16, 1899, No. 45.]

The circulation of each institution may exceed the
limit stated in article 6, when their respective notes are
entirely covered by legal metallic coin or by gold bars on
hand, excepting the provision made by article 11 for
fractional silver currency.
Exception is also made in the case of the circulation of
notes corresponding to the advances made by the banks
to the State, as per article 25.
All other infractions of the circulation limit assigned
to each institution by the said article 6 will be subject to
the provision made in article 21.
SECTION

II.—Exchange of notes.
ARTICLE 8.

[Article 3, law of August 10, 1893, No. 449. Article 5, Appendix F , and
Article 6, Appendix I, to law of July 22, 1894, No. 339.]

Holders of notes payable at sight to bearer are entitled
to require from the institutions issuing same the redemption of said notes in coin having legal currency in the
Kingdom: In Rome and in the cities of Bari, Bologna,
Cagliari, Catania, Florence, Genoa, Leghorn, Messina,
Milan, Naples, Palermo, Turin, Verona, and Venice.
However, until further legislative provision is made,
and so long as the convertibility of government notes
with coin shall remain suspended, the exchange of the
notes of the banks of issue may be made either in government notes or metallic specie.




266

Law

Relating

to Banks

of

Issue

In the latter case the said banks shall have the right
to collect from the bearers of the respective notes the
price of exchange of the metallic specie, as determined by
the rate of that day in the nearest stock exchange.
ARTICLE 9.
[Article 2, law of June 30,1891, No. 314. Article 4, law of August 10,1893,
No. 449. Law of December 24, 1908, No. 723.]

The notes of the Bank of Italy, the Bank of Naples,
and the Bank of Sicily have legal circulation up to and
including the year 1909 in those provinces in which there
is a branch or representative of the institution which has
issued the same, subject to the charge for exchange, as
prescribed in the preceding article.
The several institutions may agree to reciprocal representation for the purpose of effecting exchange.
A R T I C L E 10.
[Article 17, law of April 7, 1881, No. 133.]

The Royal Treasury may accept the notes of the banks
of issue, even when such notes shall no longer have legal
currency.
SECTION III.—Reserve.
A R T I C L E 11.
[Article 6, law of August 10, 1893, No. 449. Article 31, law of August 8,
1895, No. 486. Article 19, aforenamed agreement of November 28, 1896.
Article 13, Appendix C, to law of June 7, 1897, No. 9. Articles 7,8, and 9,
law of March 3, 1895, No. 47. Article 2, law of February 16, 1899, No. 45.
Article 2, law of December 27, 1903, No. 499. Article 19, law of J u l y 7,
1905, No. 350.]

The reserve of banks of issue must not be less than 40
per cent of the circulation within the normal limit, as per
article 6.




267

National

Monetary

Commission

The metallic portion must be in Italian legal coin,
foreign money admitted to legal circulation in the Kingdom, and gold bars; and it must consist of at least threefourths gold.
Fractional silver coin may be included in the metallic
reserve of an institution only up to 2 per cent of the total
of the said metallic reserve.
The following may be included in the 40 per cent of the
aforesaid reserve:
1. Bills of exchange, drawn on first-class foreign firms,
which are recognized as such by the minister of the
treasury.
2. Certificates of sums deposited in current accounts
abroad in large banks of issue or with banks or bankers
correspondents of the treasury.
3. Treasury bonds of the British treasury, and, in
general, treasury bonds of other foreign countries, for
terms even longer than three months, except as per
paragraph 1, article 14. These classes of securities may
be included as part of the aforementioned reserve as
follows:
For the Bank of Italy up to 15 per cent.
For the Bank of Naples, up to 15 per cent, except as
per article 13; on condition, however, that 8 per cent must
be exclusively in foreign government treasury bonds.
For the Bank of Sicily up to 15 per cent.
The bills of exchange, certificates, and treasury bonds
aforesaid must be payable in gold or in coin at the full
valuation of the Latin Monetary Union.
The certificates of amounts deposited abroad in current
accounts must not in any case represent a value more
than 3.50 per cent of the above-named circulation.




268

Law

Relating

to

Banks

of

Issue

[Article 8, Appendix B, to law of January 17, 1897, No. 9.
same law.]

Article 9 of

A R T I C L E 12.

The interest of the Italian Government bonds or of
bonds guaranteed by the State, acquired by the Bank of
Naples in 1897, together with the notes furnished to it
by the treasury in exchange for gold coin and temporarily
included in its reserve, is to be used every six months for
the reintegration of its metallic reserve in gold coin, thus
providing for a gradual restitution of government notes
to the treasury in redemption of an equal amount of gold
to be kept in its vaults.
The guaranty clause in favor of holders of notes issued
by the bank, applying to the personal certificates of the
aforesaid bonds shall continue in force until redemption
of the gold reserve shall have been completed. The
government notes which are returned to the treasury
shall be withdrawn from circulation.
A R T I C L E 13.
[Articles 10 and 15, Appendix B to the law of January 17, 1897, No. 9.
Article 4, law of December 24, 1903, No. 499. Article 19, law of July 4,
1905, No. 350.]

The Bank of Naples, besides the 15 per cent, as per
article 11, is empowered to invest up to 14,000,000 of its
metallic working fund in treasury bonds of foreign
governments, payable in gold or in silver at the full
valuation of the Latin Union, or in foreign bills of exchange
or current accounts payable at the same rates, subject to
the gradual redemption of gold specie paid into the treasury
in exchange for the issue of state bonds as per the preceding article, and to an amount not exceeding one-half
the amount of specie released annually.




269

National

Monetary

Commission

The Government may, in view of the conditions of the
money market, and the condition of the government
balance, suspend such power of investment of the metallic
working fund of the bank, or may reduce the amount
which may be invested, on condition that it compensate
the institution for the loss of benefits which it might
derive therefrom by a corresponding allowance on the
amount of the annual circulation tax. Such allowance
may not, in any case, exceed the sum of 350,000 lire.
ARTICLE 14.
[Article 31, law of August 8, 1895, No. 486. Article 9, law of March 3, 1898,
No. 47.]

The requirements for the inclusion of bills of exchange
on foreign countries in the reserve fund, the forms of
certificates of foreign current accounts, and the rules for
balancing the relative active deposits are determined by
the royal decree of October 10, 1895, No. 627.°
Whenever the treasury bonds designated in article 11,
No. 3, are for terms exceeding three months, their value
shall be diminished by a sum equal to their loss in value
in case such bonds should be discounted or rediscounted.
ARTICLE 15.
[Articles, law of January 17, 1897, No. 9. Article 3, agreement of November 28,1896, before mentioned. Article 9, Appendix B, and 2, Appendix
C, to law of January 17,1897, No. 9. Article 3, agreement of November
26, 1907, law of December 31, 1905, No. 804, Appendix A.]

Anything in the article 11 to the contrary notwithstanding, the metallic reserve for the circulation granted
to the three banks, actual or equalized by process of law,
must in no case fall below the minimum irreducible limit




a Appendix I.

270

Law

Relating

to Banks

of

Issue

of 400,000,000 lire for the Bank of Italy, of 120,000,000
lire for the Bank of Naples (excepting, in the case of the
Bank of Naples, the substitution, as per article 12, of
Italian Government bonds, or bonds guaranteed by the
State, for a part of said bank's gold reserve), and of
28,000,000 lire for the Bank of Sicily. These said sums
are to act exclusively as a guaranty for an equal amount
of notes in circulation of the three institutions.
The holders of that portion of the notes in circulation
which is not covered by the irreducible reserve have a
preferred claim on the following assets:
1. Gold specie and legal silver coin, property of the
institution, less the amount assigned as guaranty for sight
deposits, as per article 19, and over and above the irreducible amount;
2. Italian treasury bonds or other Italian Government
bonds or bonds guaranteed by the State at current value,
including, for the Bank of Italy, bonds set aside for the
Roman Bank in liquidation, and, for the Bank of Naples,
those released, as per article 12, by successive redemptions of gold specie;
3. Bills of exchange on foreign countries not included
in those forming part of the metallic reserve;
4. Credits for advances on bonds and securities, as per
article 29;
5. Domestic discounts in liquid form.
The circulation of the Bank of Italy and the Bank of
Sicily on account of their ordinary advances to the
treasury, is entirely covered by the respective bonds,
which, like the irreducible reserve, constitute an exclusive
guarantee in favor of holders of the respective notes.
397810—11—18




271

National

Monetary

Commission

A R T I C L E 16.
[Article 5, law of March 3, 1898, No. 47.]

The irreducible metallic reserve, actual or equalized by
process of law, as per the preceding article, intended solely
to guarantee the bank notes in circulation, is held separate
and distinct from the other reserve possessed by the
institutions and is subject to the "permanent syndicate"
of the State, according to the rules fixed by a royal decreed
A R T I C L E 17.
[Article 4, agreement aforementioned, November 28, 1896. Article 11,
Appendix B, and Article 3, Appendix C, to law of January 17, 1897,
No. 9. Article 7, law of December 31, 1907, No. 804.]

The domestic discounts of the three banks of issue
will be relieved from preference for a sum equal to their
respective increase of amounts invested in Italian treasury
bonds and in other bonds of the Italian Government or
those guaranteed by the State, except, in the case of
the Bank of Naples, such as come under article 12.
A R T I C L E 18.
[Article 7, law of June 30, 1891, No. 314. Article 21, law of August 10,
1893, No. 449.]

Such notes as the Bank of Italy and the Bank of
Sicily have in circulation on account of advances made
to the state treasury within the limits laid down in
article 25, and not included in the circulation under
article 6, must be covered by metallic reserve to the
extent of not less than one-third.




a

Royal decree of Aug. 3, 1898, No. 392.

272

Law

Relating

to Banks

of

Issue

ARTICLE 19.
[Articles 6 and 11 (paragraph 1), law of August 10, 1893, No. 449. Article
2, law of February 16, 1899, No. 45.]

The debt of the several institutions represented bypromissory notes or bills of exchange, banking assignments, certificates of credit, or other certificates, besides
the notes issued but payable at sight, must be guaranteed
by a special reserve, equal to at least 40 per cent of the
debt itself, of which 33 per cent is to be made up of
Italian legal coin, foreign coins admitted to legal circulation in the Kingdom, and gold bars, while the remainder
may be made up of bills of the first class on foreign countries, recognized as such by the treasury.
The metallic portion of the reserve must be at least
three-fourths in gold.
Fractional silver money may be included as per
article 11.
SECTION

IV.—Circulation tax and the participation of the
State in the profits of banks of issue.
A R T I C L E 20.

[Article 13, law of July 7, 1905, No. 350. Law of December 31, 1907, No.
804, Appendix A.]

The circulation tax is based on the average effective circulation of notes, deducting, however, an amount equal to
the amount of reserve as per article 11. Such circulation
is not subject to tax, even if it exceeds the limit fixed
by article 6, provided that the notes are wholly covered
by legal coin or by gold bars on hand, as per article 7,
first paragraph.




273

National

Monetary

Commission

Freedom from taxation is also granted to the circulation on account of the ordinary advances to the treasury,
as per article 25, and to the circulation of the notes of
the Bank of Italy, as per article 68.
The rate of taxation for the three banks of issue, on
the normal circulation, is one-tenth of 1 per cent per
annum.
Beginning with January 1, 1909, there will be remitted
to the Bank of Naples the circulation tax on an amount
of notes of its own issue equal to the amount of its current account with the realty branch closed on December
31, 1896, reduced by the reservations provided by
article 87.
ARTICLE 21.
[Law of December 31, 1907, No. 804.]

The tax shall be equal to one-third of the rate of discount of the circulation of notes exceeding the normal
limit, provided that the prescribed relation be maintained
with the metallic reserve, as per article 11, and provided
such excessive circulation be not above the following
amounts:
Lire.
50,000,000
15,000,000
4,000,000

Bank of Italy
Bank of Naples
Bank of Sicily

When the circulation of notes exceeds these amounts,
the tax on the excessive circulation, up to twice these
same amounts shall be equal to two-thirds of the rate of
discount, provided always the prescribed relation be
maintained with the metallic reserve.
On the circulation which exceeds the amounts of
100,000,000 lire and up to 150,000,000 lire for the Bank




274

Law

Relating

to Banks

of

Issue

of Italy, 30,000,000 lire and up to 45,000,000 lire for
the Bank of Naples, and 8,000,000 lire and up to 12,000,000
lire for the Bank of Sicily, provided that the prescribed
relation with the metallic reserve be maintained, the
tax shall be equal to the whole rate of discount.
On further excesses of circulation, or when the prescribed relation with the metallic reserve is not maintained, the institutions shall pay to the State an extraordinary tax of 7.50 per cent.
ARTICLE 22.
[Article 10, law of August 10, 1893, No. 449.
No. 253.]

Article 3, law of July 2, 1896,

The circulation tax on notes, and that imposed, as prescribed by article 67 of the law (Text) of July 4, 1897,
No. 414, on the circulation of sight bills therein described,
shall be paid between January 20 and July 20 of each
year, at the average rate of the respective circulation
ascertained for the six months preceding.
ARTICLE 23.
[Article 16, agreement before mentioned of November 28, 1896. Article 16,
Appendix B to law of January 17, 1897, No. 9. Article 12, Appendix C
to law of January 17, 1897, No. 9. Appendix A to law of December 31,
1907, No. 804. Article 5, agreement of November 29, 1908, between the
Bank of Italy and the Government and approved b y law of December
24, 1908, N o . 123.]

Beginning with January 1, 1909, the State shall participate in the earnings of the Bank of Italy exceeding
5 per cent per annum on the capital invested, net after
making all deductions prescribed in the succeeding article,
and in the earnings of the Bank of Naples and the Bank
of Sicily exceeding 5 per cent on the total free capital—




275

National

Monetary

Commission

capital and surplus—to be determined at the time this
present article goes into effect.
The State shall participate to the extent of one-third of
the net earnings exceeding 5 per cent when such net earnings do not exceed 6 per cent; one-half of the said earnings when such earnings exceed 6 per cent.
ARTICLE 24.
[Article 13, law of August 10, 1893, No. 449. Article 7, Appendix B to
law of January 7, 1897, No. 9. Article 1, Appendix C to law of January
17, 1897, No. 9. Article 4, law of December 31, 1907, No. 804. Article
5, aforesaid agreement of November 29, 1908.]

In the years 1909 to 1923, inclusive, 5 per cent of the
net earnings of the Bank of Italy shall be deducted from
the net earnings for the fiscal year for a pension fund, as
stipulated by article 1 of the agreement of November 29,
1908, between the said bank and the Government, and in
the years 1914-1923 a constant annuity of 750,000 lire
shall be deducted, for the same purpose and from the
same earnings, before declaring a dividend.
In the year 1923, by agreement between the royal treasury and the administration of the bank, the necessary
measures shall be taken to assure a pension to such as
are on the pay rolls of defunct institutions from 1924 and
on; if there shall be a final remainder, it shall go eventually into the earnings of the institution.
The banks of Naples and of Sicily shall be empowered to
grant, yearly, to approved purposes of public utility and
benefit, a sum which must not exceed one-tenth of the
earnings of the previous year.




276

Law

Relating

to Banks

of

Issue

The Bank of Sicily is authorized to give for agricultural
education in Sicily one-tenth of the net earnings of its
agrarian credit and two-hundredths of those of the banking business.
TITLE III.—ADVANCES TO THE TREASURY.
ARTICLE 25.
[Article 30, law of August 8, 1895, No. 486. Article 11, law of March 3,
1898, No. 47.]

The total amount of advances which the banks of issue
must make to the treasury is fixed at 125,000,000 lire,
divided as follows:
Lire.
115, 000,000
10, 000, 000

Bank of Italy
Bank of Sicily

The interest due from the treasury on said advances is
made up at the rate of 1.50 per cent free of all taxation.
TITLE IV.—OPERATIONS.
ARTICLE 26.
[Article 12, law of August 10, 1893, No. 449.]

The institutions of issue can not carry on operations
other than those indicated in the following articles:
SECTION

I.—Discounts.

ARTICLE 27,
[Article 12, law of August 10, 1893, No. 449.]

Banks of issue may discount for not more than four
months:
(a) Bills of exchange bearing the signatures of two or
more persons or firms well known to be solvent.
(b) Treasury bonds.




277

National

Monet ary

Commission

(c) Warrants (note di pegno) issued by public warehouse companies legally constituted and free consignments
(franchi depositi).
(d) Stock certificates on which the bank may make
advances.
A R T I C L E 28.
[Article 5, law of December 27, 1903, No. 449. Law of December 31, 1907,
No. 804 (Appendix A). Article 8, law of July 5, 1908, No. 404.]

During the legal currency of notes the normal rate of
discount is the same for all the banks and may not vary
without the authorization of the minister of the treasury.
The minister of the treasury, by a provision applicable
to all three banks simultaneously, may effect changes in
the normal rate of discount whenever he may consider
that conditions of the market so require.
But the banks may discount, at a charge of 1 per cent
or less, bills of exchange presented by people's banks,
mining banks, a and by such institutions of discount and
agricultural credit as are organized:
1. To serve as intermediaries between the small tradesmen and the banks of issue.
2. To discount warrants of public warehouses and consignments free taxation (franchi depositi).
The banks of issue are also authorized to discount at 1
per cent or less, for two-thirds of their value, warrants
issued on citrus products, on whose certificates of deposit
in the public warehouses the Chamber of Citrus Fruit,
established by law of July 5, 1908, No. 404, has made
advances, except as per article 12 of the same law.
a See the royal decree of February 9, 1908, No. 62 (Appendix I I I ) .




278

Law

Relating

to Banks

of

Issue

Said discount at preference rate must not exceed:
Lire.
ioo, ooo, ooo
30, 000, 000
9, 000, 000

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

The banks may moreover apply the preferential rate
to the direct discount of warrants:
(a) Issued by the companies, as per article 2 of the law
of July 8, 1903, No. 320, which conduct the public stores
for vegetables.
(b) On silks deposited in public warehouses legally
constituted.
(c) On sulphur deposited in public or similar warehouses
as per article 13 of the royal decree of July 22, 1906,
No. 378.
Besides the exceptions considered in this article, the
banks of issue may charge discount on bills of exchange,
during the period of their legal currency, at a rate lower
than the normal, under the circumstances determined by
the royal decree of October 25, 1895, No. 639.°
The said rate, which must in no case be less than 3
per cent, may be varied by decree of the minister of the
treasury, with the consent of the banks of issue, whenever
the conditions of the market render it advisable.




a

Appendix I I .

279

National

M o n et ar y
SECTION

Commission

II.—Advances."

A R T I C L E 29.
[Law of December 31, 1907, No. 804 (Appendix A).
July 12, 1908, No. 444.]

Article 19, law of

The banks may make advances for not more than four
months:
1. On government bonds or treasury bonds. On longterm treasury bonds an advance may be made for as long
as two years, under article 3 of the law of April 7, 1892,
No. i n .
2. On bonds guaranteed by the Government or of which
the Government has guaranteed the interest, whether
a
By virtue of article 5, of the royal decree of July 11, 1904, No. 337,
having force of law, the banks of issue are authorized to make advances on
the special notes issued by the Autonomous Section of Communal and Provincial Credit in accordance with the law of July 8, 1904, No. 320, and the
accompanying decree, under the conditions fixed by the present article of
the Text of the banking laws for advances on "government bonds or bonds
guaranteed by the S t a t e . "
* By article 6 of the law of June 25, 1905, No. 261, the certificates authorized
b y article 2 of the same law and already issued, or such as shall be issued,
under succeeding laws, are equalized for all intents and purposes—and
therefore for the purposes of this present Text of law—with " b o n d s on
the public debt of the State or bonds guaranteed by the S t a t e . "
According to article 13 of the agreement of Mar. 26, 1906, between t h e
Government and the Italian Southern Railway Company and approved b y
law of July 15,1906, No. 324, the obligations issued u p to and including Mar.
26, 1906, by the said company under its statutes are placed on a parity with
"bonds directly guaranteed by the S t a t e , " in the purview of article 12 of
the banking law of Aug. 10, 1893, No. 449, and also of articles 29 and 32 of
this present text.
According to article 3 of the agreement of July 20, 1906, between the
Government and the Bank of Italy for a loan in favor of the colony of
Eritrea—an agreement approved b y royal decree of Aug. 26, 1906, No.
531—the personal certificates of debt given to the said bank in relation to
t h e said operation are considered "for all purposes as government b o n d s . "
As such will also be considered the certificates to be issued b y t h e government of Eritrea to the Bank of Italy, as per the royal decree of Dec. 6, 1908,

No. 755.




280

Law

Relating

to

Banks

of

Issue

directly or by subvention expressly restricted to the
payment of said bonds.
3. On notes of realty credit institutions.
4. On notes issued under the law of June 25, 1906, No.
2
55 y by the department temporarily annexed to the Catanzaro branch of the Agrarian Credit Institution "Vittorio
Emmanuele III."
5. On bonds payable in gold, issued or guaranteed by
foreign States.
On bonds classed under Nos. 1, 2, and 3, and on longterm treasury bonds, advances may be made up to ninetenths of their market value.
On bonds under No. 4, up to three-fourths of their
current value.
On bonds under No. 5, up to four-fifths of their market
value.
On treasury bonds up to their full value.
None of the above-named bonds may be reckoned at
more than the nominal value.
6. On gold and silver coins, whether national or foreign,
in legal circulation, and on gold bars.
7. On silks, raw and in organzine or woven, reckoned at
not more than three-fourths of their current value, and
on silver bars reckoned at not more than two-thirds of
their current value.
8. On certificates of deposit issued by public warehouses legally established and on consignments free of
taxation (franchi depositi), and on orders of merchandise
or sulphur, for not more than two-thirds of the value of
the merchandise which they represent.




281

National

Monetary

Commission

9. On certificates of deposits of spirits and cognac
actually on hand in the warehouses established according to articles 8 and 9 of the Text of the law on spirits,
approved by royal decree of September 16, 1909, No.
704, for not more than one-half of the value of the alcohol
and cognac deposited.
The banks may, moreover, make advances up to six
months.
(a) On certificates of deposits of silks, issued by public
warehouses legally established.
(6) On certificates of deposits of sulphur issued by
public warehouses, for which see law of July 15, 1906,
No. 333, and on certificates equalized therewith by
article 13 of the royal decree of July 22, 1906, No. 378,
up to four-fifths of the value of the sulphur represented
by the said certificates, net after all deductions, as per
the law of June 6, 1907, No. 286.
The rate of interest on such advances may be less by
not more than 1 per cent than the normal rate on other
advances.
(c) On certificates of deposit issued by public warehouses dealing in citrus fruits and their products, conducted by companies as per article 2 of the law of July
8, 1903, No. 320, for not more than two-thirds the value
of the merchandise which they represent.
(d) On deposits of products of citrus fruits up to
two-thirds of their value.
(e) On the obligations issued as per article 171 of
the Commercial Code; article 3, law of July 9, 1905,
No. 415; article 8, law of June 16,1907, No. 540; articles




282

Law

Relating

to

Banks

of

Issue

7 and 8, law of July 12, 1908, No. 444, by grantee railway
and subsidized extraurban tramway companies, for not
more than three-fourths the current value of such
obligations.
ARTICLE 30.
[Article 35, law of August 8, 1895, No. 486. Article 26, Appendix P to
same law.]

During their legal circulation, the legal interest on
advances (see preceding article) is the same for air the
banks, and may not vary without the authorization of
the Government.
The minister of the treasury may change the interest
rate on advances whenever he deems that the conditions
of the market require it.
III.—Purchase and sale of bills of exchange,
drafts, and assignments on foreign countries.

SECTION

ARTICLE 31.
[Article 12, law of August 10, 1893, No. 449. Law of December 31, 1907,
No. 804, Appendix A.]

The banks of issue may purchase and sell for cash or
on time, on their own account, drafts and assignments
on foreign countries, and bills of exchange on foreign
countries bearing the signatures of two or more firms
well known to be solvent, for a term not greater than
three months, and payable in gold. Such operations,
during their legal currency, may not, without authorization from the minister of the treasury, be extended
further than may be necessary for the said banks to
restore their metallic reserve, to convert into deposits




283

National

Monetary Commission

abroad such personal certificates as may be used for
the payment of import duties, or to satisfy possible
orders of the treasury.
The banks of issue may make investments in foreign
bills of exchange and accounts current, not intended
for the reserve covering circulation and sight debts,
within such limits as may be prescribed by the minister
of the treasury, in view of the general conditions of the
money market. 0
SECTION

IV.—Direct investments?
ARTICLE 32.

[Article 12, law of August 10, 1893, No. 449. Article 32, law of August
8, 1895, No. 486. Article 14, law of July 7, 1905, No. 349. Article 57,
law of June 25, 1906, No. 255.]

The banks of issue may bave a working fund in
Italian bonds, or other bonds issued or guaranteed directly
by the Government, of a current value not to exceed:
Lire.
75, 000, 000
30,000,000
8, ooo, 000

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

o Royal decree of Sept. 17, 1908, No. 585.
6 By the terms of article 5 of the royal decree of July 11, 1904, No. 337,
"having force of law," the banks of issue are authorized to make use of
the special realty bonds {cartelle) issued by the Autonomous Section of
Communal and Provincial Credit as per the law of July 8, 1904, No. 320,
and the corresponding decree, for the conversion of the loan of the Commune
of Rome, for all the purposes and investments for which said banks of
issue are authorized to employ government bonds and bonds guaranteed
by the States.
See note to article 29 regarding the equalization of railway certificates
and the obligations of the Italian Southern Railway Companies with government bonds and bonds guaranteed by the State.
By article 3 of the agreement entered into July 20, 1906, between the
Government and Bank of Italy for a loan to the colony of Eritrea, which




284

Law

Relating

to Banks

of

Issue

The banks of issue are also authorized to invest in
Italian consolidated bonds or in the aforesaid bonds the
free portion of their respective surplus, over and above
their working fund, within the limitations above established, and over and above the investments as per
articles 34 and 35, within the limitations therein established.
With the previous authorization of the treasury, the
Bank of Italy and the Bank of Sicily may employ in the
acquisition of realty bonds 3.75 per cent or less of their
respective realty credits: the former up to five and the
latter up to two millions of the surplus.
The banks of issue are, moreover, authorized to acquire
the realty bonds issued, under article 57, law of June 25,
1906, No. 255, by the department temporarily annexed to
the Catanzaro branch of the Agrarian Institution of
Credit "Vittorio Emmanuele III."
ARTICLE 33-.
[Article 3, law of June 25, 1905, No. 261.]

The state railway bonds, issued to the banks of issue
under article 2 of the law of June 25, 1905, No. 261, may
be used for two purposes, namely, for new investments of
agreement was afterwards approved by royal decree of Aug. 26, 1906, No.
531, the said bank is entitled to make use of the special personal certificates of debt, granted to it as an equivalent, and considered "for all purposes as government bonds," in all transactions in bonds made within
the limitations and for the ends established by the provisions of the present
Text. According to the said article of the agreement, the bank must assign
by preference such certificates to cover fixed transactions provided for
b y the laws in force.
For the same purpose it may use the certificates which may be issued
to it by the government of Eritrea, as provided b y article 1 of the royal
decree of Dec. 6, 1908, No. 755.




285

National

Monetary

Commission

money in bonds, whether said investments are on their
own account or for affiliated enterprises, within the limitations and for the objects specified by the provisions of
this present text, and to surrogate bonds of various
kinds already held by them, especially if protected by
security. Such surrogation shall take place after a previous agreement, for the protection of the bond market,
between the administrations of the banks of issue and the
minister of the treasury.
ARTICLE 34.
[Articles 8 and 9, Appendix C to law of January 17, 1897, No. 9. Article 2,
law of March 3, 1898, No. 47.]

The Bank of Sicily is authorized to invest in Italian
treasury bonds, without time limit, the sums received up
to and including month of December, 1899, from the
liquidation of " immobilizations,'' provided that such
sums be not over 2% million lire.
The bonds thus acquired shall go to increase the working fund, for which see article 32.
ARTICLE 35.
[Article 6, Appendix C to law of January 17, 1897, No. 9.]

The Bank of Sicily is authorized to invest in government
bonds, besides the ordinary working fund and the bonds
applied to the surplus, a sum equal to that which, as a
result of the liquidation of the account current with the
realty branch (azienda fondiaria), shall be realized from
" immobilizations,'' less the last grant to the said realty
branch of 300,000 lire.




286

Law

Relating
SECTION

to Banks

of

Issue

V.—Deposits in accounts current.
ARTICLE 36.

[Article 12, law of August 10, 1893, No. 449. Article 2, Appendix E to
law of July 22, 1894, No. 339. Article 34, law of August 8, 1895, No. 486.
Article 7, law of July 2, 1896, No. 253. Law of July 15, 1909, No. 492.]

The banks of issue may receive deposits in accounts
current bearing interest. When the total of such deposits
exceeds:
Lire.
200, 000, 000
8o, 000, 000
25, 000, 000

For the Bank of Italy
For the Bank of Naples
For the Bank of Sicily

the institutions shall reduce their circulation by one-third,
except in the case of the Bank of Sicily, for which see
article 51.
ARTICLE 37.
[Article 12, law of August 10, 1893, No. 449. Law of July 15, 1909, No. 492.]

The rate of interest on interest-bearing accounts current
must not exceed one-third of the rate of discount.
The minister of the treasury has the right to authorize
the banks of issue to secure to interest-bearing deposits
in current account a rate of interest not greater than
three-fourths of the rate paid on deposits in the Postal
Savings Bank.
SECTION VI.—Issue of customs certificates and provincial
revenue service.
ARTICLE 38.
[Article 7, Appendix I to law of July 22, 1894, No. 339.]

Until further notice the banks of issue shall issue personal certificates for the payment of import duties.
These certificates are issued upon request against the
payment, in state or bank notes, of the amount of the
39781 0 —11




19

287

National

Monetary

Commission

certificate required plus the rate of exchange, determined
on the base of the average rates for bills on foreign
countries in the exchanges of Genoa, Milan, Naples, and
Rome on the day previous to that on which the said certificates are issued.
The relations between the treasury and the banks of
issue, resulting from the provisions of the present article,
are regulated by special agreement, approved by royal
decree."
The custom houses will accept said certificates in payment of import duties instead of metallic currency, provided that they are presented within ten days after their
date of issue.
ARTICLE 39.
[Law of December 31, 1907, No. 804 (Appendix A).]

The banks of issue may assume the duties of provincial
revenue offices.
They are authorized to make advances of overtax to
the Provinces for which they have assumed such offices
for a sum not greater than the total of two bimonthly
payments.
The sums thus advanced must be repaid within the
maximum term of six months after the date of the loan,
and a new advance can not be granted until the expiration
of two months after the entire repayment of the original
loan.




< Royal decree of July 11,1895, No. 416.
*

288

Law

Relating

to Banks

of

Issue

SECTION VII.—Provincial service of the Royal Treasury.
ARTICLE 40.
[Article 9, agreement of October 30, 1894, before mentioned.]

The Bank of Italy, up to and including December 31,
1912, shall act as state treasury in all the Provinces of the
Kingdom, subject to fixed rules a and regulations.
A R T I C L E 41.
[Article 10, agreement of October 30, 1894, before mentioned.]

The guaranty bond for the administration of the
treasury is 90,000,000 lire in government bonds or bonds
guaranteed by the State, calculated at the market value,
less the deduction of one-twentieth of the value thus
determined, the difference to be made good in the event
of a drop in the market.
In this guaranty bond is included the sum set aside
by the Bank of Italy under articles 2 and 3 of the agreement entered into with the Government on October 30,
1894, and approved by royal decree of December 10,
1894, No. 533, reproduced in Appendix Q to the law of
August 8, 1805, No. 496.
ARTICLE 42.
[Article 12, agreement of October 30, 1894, before mentioned.]

As a fund for the performance of the ordinary treasury
service a permanent dotation of 30,000,000 lire is granted
to the bank, with suitable provision in cases of extraordinary payments.
When the fund at the disposition of the treasury for
any reason becomes greater than 40,000,000 lire, or shows
a

Regulation approved by royal decree of Jan. 15, 1895, No. 16.




289

National

Monetary

Commission

a deficit of 10,000,000 lire, interest on the difference is
due to the treasury or the bank, respectively, at a uniform rate of 1.50 per cent free of all taxation.
The permanent dotation made to the bank for the
treasury service must be reintegrated every ten days in
such a manner that its amount at the close of the 10th,
the 20th, and the last days of the month shall not be
less than 30,000,000 lire.
ARTICLE 43.
[Article 13, agreement of October 30, 1894, before mentioned.]

As long as the government notes remain inconvertible
with metallic currency, and the exchange of notes of the
banks of issue is regulated by the provisions of article 8
(second and third paragraphs) of the present text, the
moneys deposited in gold and silver in the vaults of the
bank on account of the treasury must be kept in the
same specie at the disposition of the treasury or assigned to payments in coin to be designated by the
treasury.
SECTION VIII.—Special operations of the Bank of Naples—
Savings branch, pawn office, custody of remittances and
savings of Italian emigrants abroad.
ARTICLE 44[Article 12, law of August 10, 1893, No. 449. Articles 3 and 12, Appendix T to law of August 8, 1895, No. 486. Article 1, law of July 7, 1901,
No. 334.]

The Bank of Naples may continue its pawn-office
operations.
The savings branch of the Bank of Naples has its own
separate free capital, distinct from that of the bank and
free from all claim by the creditors of the bank.




290

Law

Relating

to Banks

of

Issue

The bank guarantees with its whole free capital all the
obligations of the said branch in favor of all third parties.
The branch is administered by the director-general of
the bank, making use therefor of the offices and the
employees of the bank.
The bank may hold in interest-bearing accounts current, at a rate of interest not less than half the interest
paid by the branch to the public, an amount which shall
never be more than one-fifth of the total assets of the
branch.
The branch is authorized to invest gradually twotenths of its deposits in agrarian credit operations in
the southern Provinces and in Sardinia, under the law of
July 7, 1901, No. 334, and in accordance with the regulation for the execution of the same, a and to engage in
such other operations as it may by special laws be authorized to perform.
All other assets of the branch must be invested exclusively in government bonds or bonds guaranteed by the
State.
ARTICLE 45.
[Article 1, law of February 1, 1901, No. 24.]

The Bank of Naples is authorized to collect, hold,
invest, and transmit into the Kingdom the savings of
Italian emigrants. For such purposes, and with the
previous authorization of the treasury, it is empowered
to make special agreements with banking houses and
with the ministry of posts and telegraphs.
a

Regulation approved b y royal decree of July 21, 1904, No. 536.




291

National

Monetary

Commission

It shall also provide, with the permission of the treasury, for the establishment of agencies where the need
of such agencies appears.
The bank is authorized to assign up to 2,000,000 lire
of its surplus, and, if necessary, of its free capital, for the
establishment of a dotation fund for this service.
The bank is forbidden to perform any operation of
discount or subsidy for emigrants or any transactions
except those indicated in the first paragraph of this present article.
The regulation a determines the precautions which the
bank must take to protect itself against possible losses
resulting from the fluctuation of exchange.
ARTICLE 46.
[Article 2, law of February 1, 1901, No. 24.]

Of the net profits of the service described in the preceding article, one-half shall belong to the Bank of Naples, and is especially intended, in time, to bring the
dotation fund up to the sum of 2,000,000 lire and reimburse the surplus or the free capital of the bank for the
sum withdrawn.
The other half shall belong to the "emigration fund,"
in conformity with the rules established by the regulation.
When the 2,000,000 lire shall have been reimbursed
to the surplus or the free capital of the bank, two-thirds
of the net earnings shall belong to the said "emigration
fund."
& Regulation approved b y royal decree of Dec. 29, 1901, No. 571, and
modified b y royal decree May 16, 1904, No. 323, and Feb. 22, 1906, No. 46.




292

Law

Relating

to Banks

of

Issue

ARTICLE 47[Article 4, law of February 1, 1901, No. 24.]

The Bank of Naples shall make a yearly report to the
minister of the treasury on the conduct of the service
described in articles 45 and 46. The report, with the
comments of the permanent commission of inspection of
banks of issue, shall be presented to Parliament by the
minister of the treasury.
SECTION

IX.—Agrarian credit and savings branch of the
Bank of Sicily.
ARTICLE 48.
[Articles 1 and 2, law of March 29, 1906, No. 100.]

An agrarian credit branch of the Bank of Sicily is established, to be known as "The Agrarian Credit of the Bank
of Sicily."
The funds necessary for this branch are made up as
follows:
(a) An initial fund of 3,000,000 lire furnished by the
Bank of Sicily, to be withdrawn from the amount of the
surplus available for investment.
(6) An advance in interest-bearing account current
granted by the Central Savings Bank "Vittorio Emmanuele" in Palermo up to the sum of 2,000,000 lire, and in
no case exceeding two-tenths of the bank's saving deposits.
(c) Three-tenths of the deposits in the savings branch
of the Bank of Sicily as per article 49.
In the fund described in (a) are included the amounts
at present invested in agrarian credit operations transacted
by the Bank of Sicily by virtue of the law of January 23,
1887, No. 4276 (third series).




293

National

Monetary

Commission

ARTICLE 49[Article 4, law of March 29, 1906, No. 100.]

The Bank of Sicily is authorized to act as a savings
bank in the Sicilian Provinces. The operations of the
savings branch are regulated by provisions of the law of
March 29, 1906, No. 100, reproduced in the present text,
and by the law of July 15, 1888, No. 5546 (third series).
ARTICLE 50.
[Article 5, law of March 29, 1906, No. 100.]

The management of the savings branch shall be separate from that of the bank itself. Until such time as the
savings branch shall have acquired from its annual earnings a free capital of its own amounting to at least onetenth of its deposits, the bank of Sicily guarantees with
its whole property all the obligations of the savings branch
in favor of all third parties.
ARTICLE 51.
[Article 6, law of March 29, 1906, No. 100. Article 8, law of July 15, 1906,
No. 383. Law of July 15, 1909, No. 492.]

The Bank of Sicily may invest the initial fund, the
advance in account current of the Central Savings Bank
"Vittorio Emmanuele" of Palermo, and not more than
three-tenths of the deposits in its savings branch, in agrarian credit operations as per the terms of the law of March
29, 1906, No. 100, and of the regulation for its execution. a
The other assets of the savings branch of the bank shall
be invested as follows:
(a) Not more than two-tenths in an interest-bearing
account current with the Bank of Sicily.
o Regulation approved b y royal decree of Dec. 23, 1906, No. 731.




294

Law

Relating

to Banks

of

Issue

(6) The remainder in bonds issued or guaranteed by the
State.
The sums deposited in account current with the Bank
of Sicily are not included in the maximum limit of
25,000,000 lire, for which see article 36 of the present text.
SECTION

X.—Other regulations.
ARTICLE 52.

[Article 56, law of June 25, 1906, No. 255.]

The Bank of Naples shall contribute 4,500,000 lire,
payable in thirty annual payments beginning with the
fiscal year 1905-6, toward forming the free capital of the
temporary department annexed to the Catanzaro branch
of the Agrarian Credit Institution "Vittorio Emmanuele
III," for which see article 17 of the law of June 25, 1906,
No. 255.
ARTICLE 53[Article 18, law of July 15, 1906, No. 333.]

The Bank of Sicily shall cooperate in the formation of
the capital of the autonomous company for the erection
and maintenance of the public warehouses for sulphur, for
which see articles 2 and 18 of the law of July 15, 1906,
No. 333.
The amount of the quota shall be taken by the bank
from its surplus.
ARTICLE 54.
[Articles 2 and 23, law of July 15, 1906, No. 333.]

The 2,000,000 lire which the Bank of Sicily has advanced
to the obligatory "Association" for the Sicilian sulphur
industry, for the formation of the capital of the autonomous Bank of Mining Credit for Sicily, shall be reimbursed




295

National

Monetary

Commission

by the "Association" to the Bank of Sicily by installments within a period not longer than eight years, at the
lowest rate of interest.
The Bank of Sicily shall have a preferential claim on
future profits on the sale of sulphur, as per article 13, No.
2, of the law of July 15, 1906, No. 333, and on all assets of
the before-mentioned Bank of Mining Credit.
ARTICLE 55.
[Article 17, law of July 15, 1906, No. 333.]

The Bank of Sicily shall act gratuitously as the cashier
of the obligatory "Association" of the Sicilian sulphur
industry.
Deposits of the " Association " shall bear the same rate
of interest as that which the bank pays on savings deposits
in interest-bearing accounts current.
ARTICLE 56.
[Article 3, law of July 15, 1906, No. 441.]

The savings branches of the Bank of Naples and the
Bank of Sicily are authorized to set aside 5 per cent of
their respective annual net earnings to increase their
quota of the amortization of land taxes due, respectively,
in the continental provinces of the former Kingdom of
Naples and in Sicily.
ARTICLE 57.
[Article 25, law of April 30, 1874, No. i92o>. Article 9, before-mentioned
agreement of October 30, 1894.]

The state treasury, except as under the agreement of
October 30, 1894, entered into with the Bank of Italy
regarding its treasury service, may deposit any amount




296

Law

Rel ating

to Banks

of

Issue

with the branches and subbranches of any institution of
credit authorized to issue notes, and may demand payment in full or in part from one or more branches or subbranches of the same institution. This service shall be
rendered to the State free of charge.
ARTICLE 58.
[Article 12, law of August 10, 1893, No. 449.]

Banks of issue are forbidden to engage in new landcredit operations.
ARTICLE 59.
[Article 12, law of August 10, 1893, No. 449.]

Any unsecured operation in account current is forbidden, whether at the time of opening an account or
afterwards.
ARTICLE 60.
[Article 12, law of August 10, 1893, No. 449.]

The bonds, securities, and movable property, which in
their nature are different from those described in Title IV,
and which have come into the possession of the banks as a
result of some of their credits, must be liquidated within
two years. The banks may, however, accept mortgages
on immovable property for overdue credits, but they
must liquidate such operations within the term of three
years.
A R T I C L E 61.
[Article 14, law of August ro, 1893, No. 449.]

At the end of every fiscal year the new overdue credits
must pass to the "loss" column, and the amounts recovered must be credited to the year in which they have
been wholly or partly collected.




297

National

Monetary

Commission

ARTICLE 62.
[Article 14, law of August 10, 1893, No. 449.]

Banks which shall engage in operations not permitted
by law are liable to a tax equal to triple the respective
rate of discount, reckoned on the total amount of the
illegal business transacted, and for the full duration of
such operations.
TITLE V.—MUTUAL REDEMPTION OF NOTES AMONG THE
SEVERAL BANKS.
ARTICLE 6
[Article 5, law of August 10, 1893, No. 449.]

Each bank must accept in payment notes of the other
banks wherever these have a branch or a representative.
Such notes must be received also for regular operations in
Provinces where they have legal circulation.
During the legal circulation of notes the rules for their
exchange among the banks are established by a royal
decree to be presented to Parliament for approval. 0
ARTICLE 64.
[Article 14, agreement of October 30, 1894, before-mentioned.]

During the legal currency of notes, and while the
Bank of Italy performs its treasury service, said bank may
not demand of the other banks of issue either the exchange
or the redemption of their notes except in an amount
equal to the amount of the notes of the said Bank of Italy
which may be held by the other institutions.
o Royal decree of February 27, 1894, No. 58, presented on t h e same day
to the Chamber of Deputies (see acts of Parliament bills No. 318 and 318-a),
but not enacted into law.




298

Law

Relating

to Banks

TITLE VI.—LIQUIDATION

of

Issue

OF THE BANCA ROMANA.

ARTICLE 65.
[Article 25, law of August 10, 1893, No. 449. Article n , before-mentioned
agreement of October 30, 1894. Articles 28 and 29, law of August 8, 1895,
No. 486.]

The liquidation of the Banca Romana is assumed by
the Bank of Italy at its own risk and peril.
The time for the liquidation of the "immobilizations"
involved in the liquidation of the Banca Romana is twenty
years, beginning with January 1, 1894, and at the rate of
one-fifth of the total every four years.
The State is not responsible for losses which may result
from such liquidation even if such losses shall exceed the
entire amount to be contributed by the Bank of Italy for
such liquidation, as per the terms of article 67.
A R T I C L E 66.
[Article 29, law of August 8, 1895, No. 486.]

The acts of sale to third parties of real property possessed by the Banca Romana on October 1, 1894, a n d
the transference to third parties of credits already existing
on November 23, 1893, limited to the value of said credits,
are subject only to a fixed registration tax of 3.60 lire.
Such preference shall be without effect after December
3 1 , 1912.




299

National

Monetary

Commission

ARTICLE 67.
[Article 29, law of August 10, 1893, No. 449. Article 2, aforesaid agreement of October 30, 1894. Article 8, aforesaid agreement of November
28, 1896. Articles 1 and 2, aforesaid agreement of November 29, 1908.]

The Bank of Italy shall pay each year 2,000,000 lire on
account of the liquidation of the Banca Romana to cover
losses resulting from the said liquidation.
If that shall be insufficient, the deficit shall be provided
for from the extraordinary reserve, for which see the
aforesaid agreement of November 29, 1908.
The advances due from the Bank of Italy for the liquidation of the Banca Romana shall not bear interest in
favor of the former.
ARTICLE 68.
[Article 10, law of March 3, 1898, No. 47.]

The circulation of notes of the Bank of Italy not covered
by metallic reserve but representing the debit of the
account current of the Banca Romana in liquidation is not
subject to tax.
Such circulation must never exceed the amount which
was registered in said account current on October 1, 1896, °
and it must be reduced in proportion to the legal liquidation and amounts set aside for that purpose.
ARTICLE 69.
[Article 30, law of August 10, 1893, No. 449, and articles 28 and 29, law of
August 8, 1898, No. 486.]

The Bank of Italy shall institute and prosecute at its
own expense all actions against the functionaries and administrators of the Banca Romana, as such, and all others
who may be found in any way responsible for the losses of
the said Banca Romana.




a 720,295.43 lire.

300

Law

Relating

to Banks

of

Issue

TITLE VII.—LIQUIDATION OF REALTY CREDITS OF BANKS
OF ISSUE.

SECTION I.—Special regulations for the department of credit
fonder or realty credit of the former Banca Nazionale nel
Regno and of the Bank of Sicily.
ARTICLE 70.
[Article 1, law of July 7, 1905, No. 349.]

The realty credit departments in liquidation of the
former Banca Nazionale nel Regno and of the Bank of
Sicily are empowered to convert their actual loans, not
only into 3.50 per cent realty bonds, but also by the issue
of new realty bonds bearing interest at 3.75 or 3.25, or
3 per cent net, with the retirement of those actually in
circulation, saving the obligation on the borrowers of the
Bank of Sicily for the payment of contributions fixed by
article 95.
The loans converted must be extinguished in a period
of time not greater than fifty years from the day of the
contract or the act of conversion. In no case may the
extinction of loans be protracted beyond the year i960.
The mortgages already registered to guarantee the
loans preserve their validity and their grade, without need
of a special reserve, to guarantee the capital, the interest,
and incidentals of the loans substituted, including the
contributions, for which see article 95.
The realty credit administration may have the acts
of conversion marked on the margin of mortgage records
remaining in effect to guarantee the loans.
For the conversion of loans the banks will endeavor, so
far as possible, to give preference to those guaranteed by




301

National

Monetary

Commission

farm properties and to those for small sums, always with
due regard to the order of applications.
ARTICLE 71.
[Article 2, law of July 7, 1905, No. 349.]

Any difference between the redemption at par of the
bonds in actual circulation and the selling price of the
new ones shall be charged to the borrower; but, by a previous special agreement with the said borrower, it may be
advanced by the realty credit administration.
For such advances the realty credit branches are authorized to dispose of the ordinary reserve fund provided
for by article 11 of the law (text) of February 22, 1885, No.
2922. The realty credit of the former Banca Nazionale
nel Regno may, moreover, dispose of the special reserve
fund, for which see article 9 of the Appendix A to the
law of January 17, 1897, No. 9, modified by article 13
of the law of July 7, 1905, No. 349.
ARTICLE 72.
[Article 15, law of July 7, 1905, No. 349.]

Independently of the conversion of the loans, the realty
credit departments in liquidation of the former Banca
Nazionale nel Regno and of the Bank of Sicily may
always proceed to the conversion of their bonds, as per
the provision of article 38, paragraphs 1, 3, and 5, of the
law of July 17, 1890, No. 6955 (3d ser.).
The conversion may be effected by the issuance of new
realty bonds at the rate of 3.75 and 3.50 per cent interest.
The reduction of the interest on the corresponding
bonds must be effected within a period not longer than
one year from the date of the conversion.




302

Law

Relating

to Banks

of

Issue

Notice of the intended conversion must be published in
the Official Gazette of the Kingdom and in all the periodicals for legal announcements, and must be repeated twice
ten days apart.
After one month from the last publication the bonds in
circulation can no longer be presented for redemption, and
the interest will be calculated at the rate of the new
bonds.
While the conversion is being effected, all the provisions
contained in the present text in favor of debtors of the
realty credit administration will be applicable to the loans,
including the right to extend the loans, as per article 70.
A R T I C L E 73.
[Article 6, agreement of November 28, 1896, before cited.
Appendix C to law of January 17, 1897, No. 9.]

Article 5,

For possible monetary needs, the department of realty
credits in liquidation of the former Banca Nazionale nel
Regno and that of the Bank of Sicily may obtain, respectively, from the Bank of Italy and from the Bank of
Sicily, advances on deposits of government bonds or bonds
guaranteed by the State, according to article 29, at a
favorable rate of interest, provided it be not less than
3.50 per cent per annum.
For the realty credit department of the former Banca
Nazionale nel Regno, the said advances may be made
also on bonds of the dotation fund, disposable by the
terms of article 76, and up to one-half of their value.

39781°—11




20

303

National

Monetary

Commission

ARTICLE 74.
[Article 6, agreement of November 28, 1896, before cited. Article 5,
Appendix C to law of January 17, 1897, No. 9.]

The banks are not subject to tax on internal advance
operations described in the preceding article.
ARTICLE 75.
[Article 7, agreement of November 28, 1896, before cited. Article 7,
Appendix C to law of January 17, 1897, No. 9. Article 12, law of March
3, 1898, No. 47.]

The real property actually in the possession of the realty
credit branch in liquidation of the former Banca Nazionale nel Regno and that of the Bank of Sicily, or
which may come into their possession by the terms of
article 104, computed at balance values, shall pass respectively to the Bank of Italy and the Bank of Sicily with
exemption from all taxes.
ARTICLE 76.
[Article 8, agreement of November 28, 1896, before cited.]

The dotation fund of the realty credit branch in liquidation of the former Banca Nazionale nel Regno shall
maintain the constant proportion of one-tenth of the
actual circulation of bonds.
The Bank of Italy shall liquidate on account of the
realty credits the excess of the dotation fund.
ARTICLE 77.
[Article 3, law of January 17, 1897, No. 9.]

If the provision of articles 73 and 76 shall not suffice to
guarantee the transactions of the realty credit branch in
liquidation of the former Banca Nazionale nel Regno and
of that of the Bank of Sicily, the deficits shall be charged




304

Law

Relating

to Banks

of

Issue

to the balances for the corresponding fiscal year of the
respective banks.
ARTICLE 78.
[Article 16, law of July 7, 1905, No. 349.]

The rules for carrying out the provisions of the law of
July 7, 1905, No. 349, relative to the conversion of loans,
are fixed by appropriate regulation.® For the application
of the other provisions of the same law the rules in force
are continued in the regulation of February 1, 1891, No. 66.
SECTION

II.—Special regulations for the realty credits of the
Bank of Naples.
ARTICLE 79.
[Article 1, law of July 7, 1905, No. 350.]

For the department of realty credits in liquidation of the
Bank of Naples beginning with January 1,1906, the interest
on loans is reduced to 3.75 per cent, except for the contributions as per article 95. Power is granted to request and
to allow the extension of the amortization for a period
of time not greater than fifty years from the date of new
contracts, with the benefits and rules of the present law,
save as regards the obligations of borrowers for the payment of contributions as per article 95, and the maintenance of the existing law relating to the interest, the
amortization of the realty bonds, and their guarantees.
In no case may the extinction of the loans be extended
beyond i960.
The mortgages already registered to guarantee the
loans shall preserve their validity and their grade, without
a

Regulation approved by royal decree of November 19, 1905, No. 547.




305

National

Monetary

Commission

need of a special reserve, to guarantee the capital, the
interest, and incidentals of the loans substituted, including the contributions, for which see article 95.
The realty credit department is entitled to mark the
acts of conversion on the margin of the mortgage records
remaining in effect to guarantee the loans.
ARTICLE 80.
[Article 1, Appendix B to law of January 17, 1897, No. 9. Law of July 2,
1908, No. 320.]

Revoking article 6, paragraph 5, of the law of February
22, 1885, No. 2922, bonds issued by the credit foncier of
the Bank of Naples, beginning January 1, 1897, shall bear
interest annually at 3.50 per cent, exempt from any impost or tax, present or future.
The old bonds of the realty credit department of the
Bank of Naples, bearing gross interest at 5 per cent, shall
be recalled and cancelled, and in exchange for them shall
be issued new bonds of equal nominal value, bearing interest annually at 3.50 per cent, exempt from all imposts
and taxes, present and future, payable semi-annually on
the 1st of April and on the 1st of October of each year.
The old bonds not presented in exchange for others of
the new issue before July 31, 1910, shall be considered as
outlawed, andtheir value shall go to the profit of the credit
foncier.
The interest and amortization of the new bonds are
guaranteed by the State.




306

Law

Relating

to Banks

of

Issue

A R T I C L E 81.
[Article 2, Appendix B to law of January 17, 1897, No. 9.
July 7, 1905, No. 350.]

Article 1, law of

The debt represented by the bonds of the realty credit
department of the bank, in circulation on January i, 1897,
shall be redeemed within the period of fifty years beginning from the same date, by means of a constant annuity,
including the net interest at 3.50 per cent, payable in
two semiannual installments of 1.75 lire each, and of the
proportion of the amortization. a
The redemption of the bonds shall be by semi-annual
drawings on February 1 and August 1 of each year. If
the value of the bonds is below par, the bank has power
to substitute, for one-half of the redemption by lot, bonds
bought direct on the market.
The loans made by the bank must be reduced according
to the conditions under which they were granted, with the
modifications effected by article 79 of the present text.
ARTICLE 82.
[Article 3, Appendix B to law of January 17, 1897, No. 9.]

Revoking article 8, paragraph 9, of the law (Text) of
February 22, 1885, No. 2922, governing realty credits,
the bonds of the realty credit department of the Bank of
Naples are accepted for the redemption of loans at a valuation determined for each quarter, based upon the average
value of the bonds for the preceding quarter in the prinicpal
exchanges of the Kingdom, increased by 50 lire. If the
average value determined and applicable shall exceed 450
lire, the bonds are accepted at par value.
a
The table of amortization has been approved b y ministerial decree
of Apr. 30, 1898, published in t h e Official Gazette of July 6, 1898, No. 150.




307

National

Monetary

Commission

ARTICLE 83.
[Article 14 of law of July 7, 1905, No. 350.]

All bonds of the department of realty credits in liquidation of the Bank of Naples which originated either from
investments on capital account or from investments of
profits from annual savings in management constitute a
fund the interest from which forms part of the ordinary
balance, and is at the free disposal of the department of
realty credits.
ARTICLE 84
[Article 15, law of July 7, 1905, No. 350.]

All amounts obtained on capital account during every
six months over and above the obligatory half-yearly
amortizations of bonds, and all those resulting from the
savings in management at the end of each fiscal year,
must be invested in government bonds or bonds guaranteed by the State to be included in the said fund, as per
preceding article, on capital account and on account of
annual savings in management, respectively.
ARTICLE 85.
[Article 16, law of July 7, 1905, No. 350.]

When the investment and reinvestment in bonds prescribed in the preceding article, in view of their circulation, their net return, and the annual burdens arising
from the realty bontis in circulation, result in a loss to the
credit foncier, they shall be suspended, with the previous
authorization of the minister of the treasury, and the
deficit shall be made up by the retirement from the
circulation and the cancellation of the said realty bonds.
The withdrawal of the realty bonds from circulation
shall be effected by means of direct purchase if quoted




308

Law

Relating

to Banks

of

Issue

below par, or by redemption of same by lot, in addition
to the half-yearly obligatory amortization, if quoted at
or above par.
ARTICLE 86.
[Article 17, law of July 7, 1905, No. 350.]

When it appears that even in the case of bonds already
forming part of the said fund (see article 83), in view of
the burdens arising from the realty bonds in circulation,
it would prove profitable for the realty credit department to anticipate their redemption by proportionately
hastening the withdrawal of the realty bonds, such bonds
may, with authorization of the minister of the treasury,
be gradually redeemed, and their income be applied
either to increase the direct purchase of realty bonds or
to increase the drawings, as per the preceding article.
ARTICLE 87.
[Article 12, law of July 7, 1905, No. 350.]

The Bank of Naples shall provide for the increment of
the fund of 15,000,000 lire (for which see article 12 of
the law of July 7, 1905, No. 350) by semi-annual and
quarterly reinvestments at compound interest, in order
to reimburse itself for the amount of the account current of its realty credit department, closed December 31,
1896.
ARTICLE 88.
[Article 8, law of January 17, 1897, No. 9. Article 13, law of July 7, 1905,
No. 350.]

The tax on movable property and the circulation tax
on bonds of the credit foncier in liquidation of the Bank
of Naples are, respectively, 15 lire per centum and 1.80




309

National

Monetary

Commission

lire per thousand, and are subscribed by the State to the
said realty credit department. To the latter will be
transferred also all such amounts as are included in the
annual dues of the borrowers for tax subscriptions.
ARTICLE 89.
[Article 5, Appendix b to law of January 17, 1897, No. 9.]

The Bank of Naples acts as cashier for its realty credit
department. Therefore, in case of need, the bank may
make advances on Italian Government bonds or bonds
guaranteed by the State in possession of the realty credit
department, at a favorable rate of interest, provided it be
not less than 3.50 per cent per annum. For such internal
operations of advances the bank is not liable to a tax.
ARTICLE 90.
[Article 18, law of July 7, 1905, No. 350.]

Any annual deficits of the liquidation shall be charged
to the realty credit department.
When all the assets in bonds, immovable property,
and ordinary credits of the realty credit department have
been exhausted, the said deficits shall be charged to the
balance of the corresponding fiscal year of the bank.
The assets, of any kind, of the realty credit department
which may remain available after the extinction of the
realty bonds shall become the property of the bank.
ARTICLE 91.
[Article 20, law of July 7, 1905, No. 350.]

The rules for the execution of the law of July 7, 1905,
No. 350, are fixed by regulation approved by royal decreed




< Royal decree of Nov. 19, 1905, No. 553.
*

310

Law

Relating

to Banks

of

Issue

SECTION III.—Regulations common to the realty credit
administrations of the three banks.
ARTICLE 92.
[Article 3, law of July 7, 1905, No. 349.

Article 2, law of July 7, 1905,

No. 350.]

Neither unpaid semi-annual dues nor interest on deferred payments, nor legal and other incidental expenses,
shall constitute an obstacle to the conversion of actual
loans in accordance with the provisions contained in the
two preceding sections.
The realty credit administrations shall take measures
to systematize and secure payment of such debt and of
the sum advanced according to article 71, and they are
further authorized to require second mortgages.
The second mortgage, agreed upon by the borrower,
shall rank immediately after the first mortgage, or at
least in a way satisfactory in the judgment of the realty
credit department.
ARTICLE 93.
[Article 4, law of July 7, 1905, No. 349. Article 3, law of July 7, 1905,
No. 350.]

The amount of the debt consisting of the unpaid semiannual dues, of the interest on deferred payments, of
legal expenses and other incidentals, of sums advanced in
conformity with article 71, and of taxes on movable
property on account of the realty credit department of
the Bank of Naples, shall constitute a separate capital
sum which must be extinguished in a period of time not
exceeding that of the amortization of the converted
loan added to the corresponding tax on movable property.




311

National

Monetary

Commission

ARTICLE 94.
[Article 5, law of July 7, 1905, No. 349. Article 4, law of July 7, 1905,
No. 350.]

No tax will be due to the treasury for acts and contracts of conversion of actual loans, for requisite mortgage
entries for acts and contracts in systematization of the
loan, or for the second mortgages mentioned in the two
foregoing articles.
The realty credit departments of the banks of issue
shall in no case partake of the compensations mentioned
in article 3 of the law of July 4, 1896, No. 183,® arising
from the conversion of the old loan.
Likewise, in application of article 3, last paragraph,
of the same law of June 4, 1896, no tax shall be due to
the treasury.
ARTICLE 95.
[Article 6, law of July 7, 1905, No. 349. Article 5, law of July 7, 1905,
No. 350.]

For the loans which shall be converted under the
terms of the two preceding sections the borrowers shall
pay to the realty credit department for dues to the state
treasury (except in the case of the realty credit department of the Bank of Naples, for which see provision
of article 88) certain annual contributions as imposts on
movable property, as subscription to taxes of whatever
kind which may be payable to the finances of the State
for the contract of the loan, for the issue and circulation
of the mortgage bonds, and for all the acts and formalities mentioned in article i of the law of June 4, 1896,
No. 183.
a Modified from article 4, law of Dec. 22, 1905, No. 592.




312

Law

Relating

to Banks

of

Issue

The contribution to the impost on movable property
shall consist of an assessment of 10 lire on every ioo
lire interest on loans not exceeding 10,000 lire, and 12
lire in the same proportion on loans greater than such
sum.
The subscription to the taxes as above shall be 8
centesimi per 100 lire of loans not exceeding 10,000
lire and 10 centesimi per 100 lire for others.
The second of these contributions shall be turned over
by the realty credit administrations of the former Banca
Nazionale nel Regno and the Bank of Sicily to the proper
registration offices, and the other to the state treasury,
according to article 22 of the abovementioned law.
When, by amortization or advance payments, the
loan shall be reduced to one-half, the rate of the taxes
shall be successively reduced to one-half and calculated
on the capital amount still due.
ARTICLE 96.
[Article 7, law of July 7, 1905, No. 349. Article 6, law of July 7, 1905,
No. 350.]

Modifying article 3 (second paragraph) of the law of
June 4, 1896, No. 183," in the case of advance payment
in whole or in part of the debt arising out of the loan,
the realty credit branches of the banks of issue shall be
entitled, under special uniform conditions, to collect a
commission fee up to 5 per cent of the sum refunded before
the date fixed by the new contract.
a

Modified b y article 4 of the law of Dec. 22, 1905, No. 592.




313

National

Monetary

Commission

A R T I C L E 97.
[Article 8, law of July 7, 1905, No. 349. Article 7, law of J u l y 7, 1905,
No. 350.]

For loans to be converted not exceeding 20,000 lire, the
subscription under article 95 of the present text shall cover
all the stamp taxes due for the certificates of the entry
and transcription of mortgages and all such payments,
and in general for all the acts and documents which,
upon direct requisition of the realty credit branches, may,
in accordance with the regulations and precautions established by statute, be issued by the proper public officers
or notaries with the object of legalizing the demands for
the conversion of the said loans.
ARTICLE 98.
[Article 9, law of July 7, 1905, No. 349. Article 8, law of July 7, 1905,
No. 350.]

The use of the 50-centesimi stamp for procedures under
article 21 of the law of June 4, 1896, No. 183, is hereby
further extended to all proceedings instituted by the
realty credit branches, including incidental judgments,
even when they relate to questions of merit, in all the
degrees of jurisdiction, and to judgments both of apportionment and liquidation and all incidental proceedings,
as also to proceedings for taking possession of real property adjudged to the said realty credit branches following
sale at auction instituted either by the realty credit
branches or others.




314

Law

Relating

to Banks

of

Issue

ARTICLE 99.
[Article 10, law of July 7, 1905, No. 349.
No. 350.]

Article 9, law of July 7, 1905,

A reduction of one-half is hereby made in the fees
fixed by the notary tariff now in force for the stipulation of contracts of conversion of loans, as per the provisions of the following sections.
ARTICLE 100.
[Article 11, law of July 7, 1905, No. 349. Article 10, law of July 7, 1905,
No. 350.]

Representatives of the realty credit branches of the
banks of issue, upon the presentation of tax valuation
records referring to specified properties, may search the
tax registers and obtain, without charge, such memoranda
and notes as are necessary for performing their appointed
duties.
ARTICLE 101.
[Article 12, law of July 7, 1905, No. 349. Article 10, law of July 7, 1905,
No. 350.]

The reduction under article 31 of the law of June 4,
1896, No. 183, to one-fourth of the registration taxes for
acts of transfer and conveyance therein specified, arisixig
from loans arranged up to December 31, 1895, shall be
extended, in favor of the realty credit branches, to
December 31, 1916.
ARTICLE 102.
[Article 2, Appendix S to law of August 8, 1895, No. 486.]

The realty credit branches of the banks
the right to surrender their own credits to
tions of realty credit, ordinary or private,
ditions as they may deem convenient, wholly
their respective credit, as the law provides.




315

of issue have
other instituon such conextinguishing

National

Monetary

Commission

ARTICLE 103.
[Article 3, Appendix S to law of August 8, 1895, No. 486.]

No payment or compensation is due to the treasury in
case of anticipated redemption of a realty loan made
through the contraction of a new mortgage loan with
other institutions, provided that the amount and the time
of the new loan be not less than the amount still due and
the time still to run.
A R T I C L E 104.
[Article 4, Appendix S to the law of August 8, 1895, No. 486.]

When the realty credit department of a bank of issue
becomes the receiver of mortgaged real property, the
redemption of the remaining debt may be deferred with
the proviso that the half-yearly amortization be continued
for the time of the original loan.
In case of sale, the price must be invested in the extinction of the remaining debt and the redemption of the corresponding number of realty bonds. When such price is
not sufficient, the institution must supply the difference.
The provisions of this present article are not applicable to
the realty credit department of the Bank of Naples, the
realty-bond business of which is regulated by articles 80,
81, 82, 85, and 86.
A R T I C L E 105.
[Article 5, Appendix S to law of August 8, 1895, No. 486.]

The power granted to the receiver by article 36 of the
law of July 17, 1890, No. 6955, may be also exercised by
the buyer of immovable property under a judgment
granted to the realty credit department of a bank of issue.




316

Law

Relating

to Banks

of

Issue

The term of fifteen days, as specified in said article 36,
is extended to thirty days in favor of the receiver who
intends to profit by the realty loan granted to the dispossessed debtor.
ARTICLE 106.
[Article 6, Appendix S to the law of August 8, 1895, No. 486.J

After the third attempt at sale by auction the realty
credit branches of the banks of issue may request from
the Civil Tribunal the authority to sell by private agreement properties subject to expropriation and to foreclosure
for a sum not less than that bid at the last auction.
This provision can not be impugned except for nullity
of form, and such impugnation shall not suspend the sale.
The price shall be paid to the bank, which shall deduct
what is due to it, in conformity with article 23 (F) of
the text of the law governing realty credit, approved by
royal decree of February 22, 1895, No. 2922, holding the
remainder in trust to await apportionment.
ARTICLE 107.
[Article 7, Appendix S to the law of August 8, 1895, No. 486.]

For the appointment, the recall, and the surrogation of
the sequestrator (for which see (B), article 23, of the said
text of the law governing realty credits), and for the bond
which may be required from him, the president of the
tribunal must conform to the proposals of the realty
credit branches of the banks of issue.




317

National

Monetary

Commission

TITLE VIII.—SUPERVISION OF CIRCULATION AND

BANKS

OF ISSUE.
SECTION

I.—General regulations.
A R T I C L E 108.

{Article 15, law of August 10, 1893, No. 449. Articles 26 and 27, law of
August 8, 1895, No. 486. Article 1, Appendix P to t h e law of August
8, 1895, No. 48(5. Article 12, Appendix T to the aforesaid law.]

The supervision of banks of issue, realty credit branches,
the saving branch of the Bank of Naples, and the liquidation of the Roman Bank is vested in the treasury.
A R T I C L E 109.
[Article 4, Appendix P to the law of August 8, 1895, No. 486.]

The necessary expenses of the supervision of the banks
of issue shall be borne by the banks themselves.
SECTION

II.—Permanent commission.
ARTICLE n o .

[Article 3, Appendix P to the law of August 8, 1895, No. 486. Law of
December 31, 1907, No. 804, Appendix A. Law of June 30, 1908, No.
304.]

A permanent commission is appointed for the supervision of the banks of issue and of the state and banking
circulation, under the presidency of the minister of the
treasury.
The said commission is composed of four senators and
four deputies elected by the respective chambers, with
the proviso that in case of the dissolution of the Chamber
of Deputies, the deputies shall remain in office until a new
election; also of five members appointed by royal decree,




318

Law

Relating

to Banks

of

Issue

upon the recommendation of the minister of the treasury
and with consent of the council of ministers.
The members appointed by the Government are a
president or councillor of the state council, a president
or councillor of the court of accounts, the director-general
of the treasury, the inspector-general for the supervision
of the banks of issue, the treasury services, and the board
of sanitation of the city of Naples, the director-general of
credit and estimate in the ministry of agriculture, industry, and commerce.
The commission shall elect a vice-president from its own
number.
ARTICLE i n .
[Article 26, law of April 7, 1881, No. 133. Article 27, law of August 8,
1895, No. 486. Article 5, Appendix P to the same law.]

The permanent commission for the supervision of circulation and the banks of issue shall, upon the request of
the minister of the treasury, give its advice:
1. On all provisions and regulations concerning methods
and guarantees:
(a) For exchange operations, withdrawal and cancellation of government notes, and the substitution of new
notes, which must be passed upon by the court of accounts.
(6) For the custody of state notes intended for the
working fund.
(c) For the acceptance of bank notes by the state treasury when they shall have ceased to have legal circulation,
as per article 10.
2. On the rules to be established in regard to the exchange of bills when the new regulations contained in
article 8 shall have been issued.
39781 0 —ii




21

319

National

Monetary

Commission

3. On the form of the decennial reports of the condition
of each bank, which shall show separately the various
kinds of assets and liabilities which form the free capital
of the concern.
4. On the special agreement to be entered into among
the banks, subject to the approval of the Government, for
the getting rid of notes of other institutions.
Moreover, the commission may be invited to give its
advice on all measures regulating the manufacture, supply, custody, withdrawal, and cancellation of bank notes,
and determining the quantity and use of notes in the
working fund as per article 4.
A R T I C L E 112.
[Article 6, Appendix P to the law of August 8, 1895, No. 486.
law of February 1, 1901, No. 24.]

Article 4,

The permanent commission shall, upon the request of
the minister of the treasury, extend its examination to
include the following:
(a) The proposed amendments of the charter of the
Bank of Italy within the limits of the laws.
(b) Amendments that may be deemed necessary to
the statutes and by-laws of the banks of Naples and
Sicily.
(c) And, in general, all the provisions necessary for the
execution of the present law.
The report, as per article 44 of the present text, shall
be referred to the commission for its opinion.




320

Law

Relating
SECTION

to Banks

of

Issue

III.—Permanent supervision.
ARTICLE 113.

[Law of December 31, 1907, No. 804.]

The permanent supervision of the banks of issue and
their branch managements is undertaken by the minister
of the treasury through the inspectorate-general.
ARTICLE 114.
[Article 8, Appendix P to the law of August 8, 1895, No. 486.]

The board of directors of the Bank of Italy shall, from
time to time, and with sufficient notice, advise the minister of the treasury of the date and hour fixed for the
general meetings of shareholders, for the meetings of the
superior council, and of the liquidation committee of the
Banca Romana, inclosing a programme of the subjects to
be discussed at such meetings.
Similar communications must be made by the banks
of Naples and Sicily in regard to the meetings of the
general council and central council of administration.
At the sessions of the above-mentioned councils and
commissions there shall be present a government inspector or, in his stead, an official delegated by the minister of the treasury with power to suspend the execution
of decisions that may in his opinion be contrary to the
laws, regulations, and statutes.
Immediate notice of such suspensions must be given
to the minister of the treasury, who will either approve
or revoke the same, giving due notice to the banks interested, within five days from the date of suspension.
If the suspension meets with the minister's approval, he
shall have the power to annul the decision when the same




321

National

Monetary

Commission

is recognized as contrary to the laws, regulations, and
statutes.
A R T I C L E 115.
[Article 9, Appendix P to the law of August 8, 1895, No. 486.]

When an inspector or a delegate, as in the preceding
article, shall have failed to suspend a decision which the
minister of the treasury deems to be contrary to the laws,
regulations, and statutes, the minister may directly suspend the same within five days from the date of the
meeting, basing such action upon the report communicated by the inspector and giving notice thereof to the
bank interested.
After the suspension the minister shall have the power
to annul the said decision if the same be found contrary
to the laws, regulations, and statutes.
A R T I C L E 116.
[Article 10, Appendix P to the law of August 8, 1895, No. 586.]

The inspector or delegate (see the foregoing article)
must transmit, within two days, to the minister of the
treasury a report on the matters discussed and on the
decisions taken at the meeting at which he has been
present.
Within the same time the board of directors of the
bank shall transmit an abstract of the matters discussed,
as well as a copy of the minutes of the meeting duly
verified.
A R T I C L E 117.
[Article 11, Appendix P to the law of August 8, 1895, No. 486.]

The inspectorate-general shall examine the annual
balances of the banks of issue and, where deemed necessary, verify the correspondence of said balances with
the records of the institutions.




322

Law

Relating'

to Banks

of

Issue

For this purpose the banks must promptly transmit
to the inspectorate their balances and profit and loss
accounts, and they must furnish all such information as
may be required of them except in the case of the Bank
of Naples and its realty credit department as per article
135ARTICLE 118.
[Article 12, Appendix P to the law of August 8, 1895, No. 486.]

Reports on the operations of each bank, compiled in
accordance with the forms approved by special royal
decree, shall be handed in on the 10th, 20th, and the
last day of each month.
They shall be transmitted to the treasury at the latest
within eight days after date and must be signed by the
director-general and by the chief of the general accounting division of the bank.
The banks are obliged to furnish to the inspectorategeneral all required information in connection with the
reports received.
The inspectorate shall verify from time to time the
correspondence between the reports and the records of
the bank.
The condition of each bank shall be published by the
inspectorate-general in the Official Gazette of the Kingdom.
A R T I C L E 119.
[Article 13, Appendix P to the law of August 8, 1895, No. 486.]

The bills of exchange on foreign countries, included in
the reserve of the banks of issue, in conformity with
article 11, must be verified at short intervals by the
inspectorate-general in order to ascertain their value




323

National

Monetary

Commission

and to make sure that the requirements as set forth in
the royal decree of October 10, 1895, No. 627, have been
complied with.
The said decree establishes the rules for the balancing
of deposits in accounts current abroad, reckoned as
reserve, as per the terms of said article 11.
A R T I C L E 120.
[Article 14, Appendix P to the law of August 8, 1895, No. 486.]

The inspectorate-general shall, at short intervals, see
that the regulations regarding the movement of the bills
are strictly observed.
The said inspectorate shall make not less than twice
each year, and even in the interval between two decades,
a complete verification, without notice and simultaneously,
of the cash on hand in all the branches, subbranches,
and agencies of the bank.
Such proceedings can not, for any cause, be postponed
to any other day than that fixed beforehand. If more
than one day is required for their completion* they shall be
continued without interruption taking such precautions
as may be deemed necessary for their satisfactory performance.
The reports on these verifications, with a recapitulation,
shall be transmitted promptly to the inspectorate-general
for possible remarks to the banks.
For the purpose of these verifications the minister of
the treasury may secure information, besides that furnished by the intendants of finance, from all the members
of their staff.




324

Law

Relating

to

Banks

of

Issue

A R T I C L E 121.
[Article 15, Appendix P to the law of August 8, 1895, No. 486.]

The inspectorate-general must make certain special
verifications in the branches and sub-branches of the
banks, according to such rules as shall be ordained by
ministerial decree.
The purpose of such verifications shall be principally to
ascertain the nature (i) of the metallic and paper currency;
(2) of public effects on deposit, being the property of third
parties, or representing the direct investments of the
banks; (3) of the portfolios; and further to see that all
the operations are conducted in accordance with the law.
The directors of the above-mentioned branches and subbranches must submit to the inspectors the registers and
documents necessary for their discharge of the duties
with which they are intrusted.
A R T I C L E 122.
[Article 16, Appendix P to law of August 8, 1895; No. 486.]

Besides the powers conferred by the foregoing articles,
the inspectorate-general possesses also all those specified
in the special statute as per article 4.
SECTION IV.—Periodical and extraordinary inspections.
A R T I C L E 123.
[Article 15, law of August 10, 1893, No. 449. Article 17, Appendix P to the
law of August 8, 1895, No. 486. Article 36, same law.]

At the end of every three years the minister of treasury
shall order an extraordinary inspection of the banks of
issue, through state officials who have not participated in
previous inspections of the respective banks.




325

National

Monetary

Commission

The reports of such inspections shall be presented to
Parliament within three months.
A R T I C L E 124.
[Article 18, Appendix P to t h e law of August 8, 1895, No. 486.]

These inspections have as their object:
(a) To ascertain the quantity and quality of metallic
currency, of bills of exchange, and of accounts current on
foreign countries, included in reserve according to the law.
(6) To verify the actual quantity of notes in circulation
and of those on hand, according to their different classes,
taking separate account of notes serving as working fund
and those withdrawn as worn out, and canceled but not
yet destroyed, in conformity with the regulations in the
before-mentioned article 4.
(c) To ascertain whether, in the exchange of notes with
the public and among the banks themselves, the latter have
followed the rules established by the laws and regulations
in force.
id) To certify the exact correspondence of the records
contained in the books of the banks with the reports and
statements transmitted to the Government.
(e) To verify the nature of the operations of the banks
as regards the provisions contained in Title IV.
(/) To certify the observance, on the part of the Bank
of Italy, of the prescriptions of the Commercial Code, and
particularly of those contained in articles 146 and 181,
and the actual existence of the respective free capital of
the banks of Naples and Sicily.
(g) To ascertain whether within the two years, as prescribed by article 60, the bonds, securities, and various




326

Law

Relating

to Banks

of

Issue

movable properties specified therein which became property of the banks after August 25, 1893,® as a result of
their credits have been liquidated; and whether within
three years, as specified by the same article, the liquidation has been effected of the operations relative to overdue credits guaranteed by mortgage or by transfer of
movable properties.
(h) To examine all other conditions intended to assure
the exact and complete fulfillment of the law.
(i) To make a general examination of the conduct of
the banks and of the functions which they perform affecting
either the public interest or the treasury.
A R T I C L E 125.
[Article 20, Appendix P to the law of August 8, 1895, No. 486.]

The director of the bank, or whoever acts in his stead,
and his subordinates must furnish all the explanations
and exhibit all the books and documents required by the
state officials charged with the inspection. The director or
his substitute may cause to be present at the inspection the
head of the department under inspection or verification.
A R T I C L E 126.
[Article 21, Appendix P to the law of August 8, 1895, No. 486.]

The public officials charged with the extraordinary
inspections, as per article 123, must submit, within one
month from the completion of the inspection, a detailed
account of the results of the said inspection.
In case the conditions revealed by the inspection are
serious, notice thereof must be given immediately to the
minister himself.
a Date of the enforcement of the law of Aug. 10, 1893, No. 449.




327

National

Monetary

Commission

ARTICLE 127.
[Article 22, Appendix P to the law of August 8, 1895, No. 486.]

The minister of the treasury may at any time order
extraordinary inspections, either general or special, of the
banks of issue.
ARTICLE 128.
[Article 23, Appendix P to the law of August 8, 1895, No. 486.]

When ordinary or extraordinary inspections and special
verifications reveal infractions specified in articles 21, 62,
and 137, the officials charged with such inspections and
verifications must make out a proper report and transmit
the same immediately to the minister of the treasury, who
will take action as provided in said articles.
Whenever acts are revealed of a criminal character the
officials must report same to the judicial authorities and
give immediate notice thereof to the aforesaid minister.
ARTICLE 129.
[Article 24, Appendix P to the law of August 8, 1895, No. 486.]

Having ascertained the facts as per articles 138, 139,
and 140, the minister of the treasury shall make regular
report to the judicial authorities for infliction of the punishments specified by those articles.
ARTICLE 130.
[Article 25, Appendix P to the law of August 8, 1895, No. 486.]

Not later than the month of May of each year the
minister of the treasury shall submit to Parliament a
detailed account of the conduct of the banks of issue and
of the state and bank circulations during the previous
calendar yea




328

Law

Relating

to Banks

of

Issue

A R T I C L E 131.
[Article 26, Appendix P to t h e law of August 8, 1895, No. 486.]

Until the reestablishment of the fiduciary circulation of
bank notes, the inspectorate-general shall see that the
official rate of discount and that of interest on advances
are constantly maintained by all the banks of issue, without any variations not sanctioned by the law.
TITLE IX.—GENERAL

REGULATIONS.

A R T I C L E 132.
[Article 17, law of August 10, 1893, No. 449.]

Members of Parliament can not hold any office in the
banks of issue, whether with or without salary or compensation.
A R T I C L E 133.
[Article 1, law of August 10, 1893, No. 449.]

The charter of the Bank of Italy is approved by royal
decree.
This approval and the insertion of the said charter in
the official collection of laws and decrees of the Kingdom
shall take the place of the publications and transcriptions
prescribed in the Code of Commerce for joint stock
companies.
A R T I C L E 134.
[Article 15, law of August 10, 1893, No. 449. Article 9, Appendix T to t h e
law of August 8, 1895, No. 486.]

The appointment of the director-general of the Bank of
Italy must be approved by the Government.
The directors-general of the Bank of Naples and the
Bank of Sicily are appointed by royal decree upon the
recommendation of the minister of the treasury with the
consent of the council of ministers.




329

National

Monetary

Commission

ARTICLE 135.
[Article 18, Appendix B to the law of January 17, 1897, No. 9, and article
10 of the same law.]

The rules governing the enforcement of articles 12, 15,
80 to 82, 84, 87, and 89, guaranteeing the most rigorous
administration of the Bank of Naples and its realty credit
department, the proper balance of their ledgers, and the
restriction of credits to those inscribed in the proper lists,
called "Castelletti," and for sums not greater than those
prescribed in the said lists, are established by regulations
approved by royal decree.a
The same decree also provides for a permanent treasury
inspector to supervise the liquidation of the said realty
credit and to see that all the safeguards ordered to guarantee the provisions relating to the said realty credit are
vigorously enforced.
Another royal decree b establishes the rules for agreement between the Bank of Naples and the other banks of
issue for the reciprocal exchange of advices regarding the
credits granted to any one house.
The regulations of the Bank of Naples,0 in the part
concerning the personnel, shall determine the responsibility of officials of all grades and their respective duties,
except in the cases considered in articles 138, 139, and 140.
a Royal decree of Apr. 22, 1897, No. 141, modified by royal decree of
Nov. 19, 1905, No. 553.
& Royal decree of June 1, 1897, No. 172.
c Approved by royal decree of Aug. 2, 1908, No. 529.




330

Law

Relating

to Banks

of

Issue

ARTICLE 136.
[Article 22, law of April 7, 1881, No. 133. Article 4, law of August 10, 1893,
No. 449. Article 10, Appendix D to the law of January 17, 1897, No. 9.]

Clearing houses established by virtue of the royal decree
of March 19, 1881, No. 220, or which may be established
thereafter, shall admit a representative of the State
Treasury and one representative of the branches and subbranches of the banks of issue, of the savings banks, of
banks of discount and people's banks, and of the principal
bankers, for the exchange of notes payable to bearer at
sight and for the clearance of other bank paper
The conduct of clearing houses, where this is vested
directly in the chambers of commerce, may by these be
intrusted, with the consent of the Government, and at
their own risks and perils, to a single bank of issue, if
said bank already exercises such functions.
The clearing houses which may be established in cities
where there are branches and subbranches of any of the
banks of issue may be intrusted by the local chamber of
commerce to such banks of issue, united in association,
as may have branches or subbranches at said place.
TITLE X.—PENALTIES.
A R T I C L E 137.
[Article 16, law of August 10, 1893, No. 449.]

By royal decree, upon the recommendation of the
minister of the treasury, with the consent of the council
of ministers, the power of issue may be suspended or
revoked in the case of any bank which may violate the
provisions of the law or of its own charter.




331

National

Monetary

Commission

The managers of the banks of issue, excepting as provided by article 149 of the Code of Commerce, are liable,
collectively and individually, to the shareholders of the
bank and all other parties for nonfulfillment of the provisions of the present law, statutes, and regulations,
apart from the civil and criminal actions arising out of
other laws.
An action against the management of the Bank of Italy
may be instituted by one or more shareholders provided
that such shareholder or shareholders have at least 1,000
shares.
ARTICLE 138.
[Article 20, law of August 10, 1893, No. 449.]

In case of transgression of the provisions of the present
law any employee of the banks of issue who shall affirm
what is false or conceal the truth, thereby misleading the
officials of supervision or inspection with the object of
concealing irregular conditions of said banks, forbidden
operations, or actions that may involve the responsibility
of another, shall be punished with from three months'
to four years' imprisonment and with temporary interdiction from holding public office.
ARTICLE 139.
[Article 20, law of August 10, 1893, No. 449.]

Whoever, while acting as supervisor or inspector of
the banks of issue, shall affirm what is false or conceal
the truth, for purposes indicated in the foregoing article
shall be punished with from one to five years' imprisonment and with temporary interdiction from holding
public office.




333

Law

Relating

to Banks

of

Issue

ARTICLE 140.
[Article 20, law of August 10, 1893, No. 449.]

Whoever shall effect the issue of bank notes that are
not manufactured and issued according to the rules of
article 4, or put in circulation bank notes which ought
to have been cancelled or burned, shall be punished
with from three to ten years' imprisonment and with
temporary interdiction from holding public office.
ARTICLE 141.
[Article 30, law of April 30, 1874, No. 1920.]

Firms and associations not included in this law, and
individuals, who shall issue notes or other equivalent
paper payable to bearer at sight, shall be subject to
a fine equal to the amount of the notes or other paper
issued.
ARTICLE 142.
[Article 30, law of April 30, 1874, No. 1920.

Law of July 5, 1908, No. 388.]

It is forbidden to manufacture, to issue, or to put in
circulation, for any purpose, any kind of notes or printed
forms imitating or resembling, wholly or partially, on the
face or back, bank notes or any other bank paper,
under a penalty of 50 to 500 lire against those who shall
manufacture them or put them on sale.
The printed forms and the plates shall in every case
be confiscated, regardless of ownership, and shall be
destroyed.




333

National

Monetary

Commission

TITLE XI.—TEMPORARY REGULATIONS.
A R T I C L E 143.
[Article 13, law of August 10, 1893, No. 449. Article 6, law of July 7, 1902,
No. 290. Article 4, law of July 7, 1902, No. 318. Article 2, law of July 5,
1908, No. 351.]

The credits of the banks of issue already classed as
" immobilizations," and which, under contracts previous to
June 30, 1893, by their terms of currency or by provision
of law, can not be liquidated till 31st of December, 1908,
shall be liquidated as soon as they become collectible
under their special contracts or by law.
A R T I C L E 144.
[Article 5, law of July 7, 1902, No. 290.]

The Bank of Italy and the Bank of Naples are authorized
to grant to the Society for the Sanitation of Naples
temporary advances, guaranteed as prescribed by law,
bearing interest at 3.50 per cent, up to a total sum not
exceeding the actual value of the public works already
executed, to form a contribution of 7 millions for the completion of the said works.
A R T I C L E 145.
[Article 7, law of July 7, 1902, No. 290. Article 16, law of January 17, 1897,
No. 9.]

The Bank of Italy and the Bank of Naples, for the
purpose of the liquidation and reimbursement of their respective credits in connection with the Society for the
Sanitation of Naples, shall, until the end of the year 1913.
be entitled to a reduction of three-quarters of the tax for
registration of sales, purchases of immovable property, or
transference of credits and other fiscal proceedings as per




334

Law

Relating

to

Banks

of

Issue

article 2 of the law of December 26, 1901, No. 516, regardless of the dates of their respective mortgages.
Furthermore, the said institutions shall, until the same
date, be entitled to a reduction of one-half of the registration stamps and taxes due for processes and judgments
in the collection of their above-mentioned credits.
Witnessed by order of His Majesty:
(Signed)
TEDESCO,
The Minister Secretary of State for the Treasury.

39781 0 —11




22

335

APPENDIX I.
ROYAL DECREE OF OCTOBER 10, 1895, No. 627, FIXING THE
REQUIREMENTS FOR THE ADMISSION OF BILLS OF EXCHANGE ON FOREIGN COUNTRIES AND CREDITS IN CURRENT ACCOUNTS ABROAD AS PART OF THE RESERVE OF
BANFS OF ISSUE.
[Published in the Official Gazette of the Kingdom October 24, 1895, No.
251]

HUMBERT I, BY GRACE OF GOD AND BY W I L L OF THE
NATION KING OF ITALY.

In pursuance of article 6 and article 11 of the law of
August 10, 1893, No. 449, for the reorganization of the
banks of issue; and
In pursuance of article 31 of the law of August 8, 1895,
No. 486, regarding finances and treasury; and
In pursuance of the text of the regulations for supervision of the banks of issue, constituting Appendix P,
approved by article 26 of the aforenamed law of August
8, 1895; and
With the consent of the banks of issue;
Upon the proposal of our secretary of state for the
treasury:
We have decreed, and do hereby decree:
ARTICLE i.fl

The bills of exchange on foreign countries which, according to the terms of, and within the limits specified
a

For articles 6 and 11 of the law of August 10, 1893, No. 449, must be substituted articles 11 and 19 of the new text of the law.




336

Law

Relating

to

Banks

of

Issue

in, articles 6 and n of the law of August 10, 1893, No.
449, may be included in the reserve covering the circulation, must be disposable abroad, on the day when such
bills become due, in gold specie or in money at the full
value of the Latin monetary union.
These bills of exchange, duly accepted by the agent
abroad, must fall due not later than three months from
the date when they begin to form part of the portfolio
for the reserve of the banks of issue, and must be furnished
with at least two first-class signatures.
ARTICLE 2.

Within fifteen days from the publication of the present
decree, and successively at the end of every six months,
the banks of issue shall transmit to the treasury a list of
institutions and banking firms, not direct correspondents
of the'treasury, whose signatures they consider as being
of first class, as per the foregoing article.
The minister of the treasury shall at all times have the
right to order the elimination of one or more names of
institutions or firms from the said list.
ARTICLE 3.

To form part of the quota of reserve, within the limits
specified in article 1 of the present decree, are admitted
the bonds of the British treasury, and, in general, treasury bonds of foreign states, the same being payable in
gold or at the full value of the Latin monetary union,
provided that not more than three months intervene between the date of acquisition by the banks of issue and
the date when the said bonds fall due.




337

National

Monetary

Commission

ARTICLE 4.
As part of the reserve covering the circulation of the
banks of issue, within the limits specified in article 1, are
admitted the credits in current account, perfectly disposable in gold or at the full value of the Latin union, at
sight or for a term not exceeding fifteen days, which the
banks of issue may have abroad with the large banks of
issue and bankers in direct correspondence with the
treasury.
The banks of issue availing themselves of this provision must transmit to the treasury detailed certificates
proving the actual existence of the said credits, issued by
the institutions or by the debtor bankers, at the close of
business on the 10th, 20th, and the last day of each
month.
ARTICLE 5.
The said certificates must bear a statement of the actual
credit of the Italian bank of issue at the close of business
on the 10th, 20th, and the last day of each month; the
kinds of money in which the credit is payable; the declaration that the said credit is payable entirely at sight or not
later than fifteen days from the date when notice for repayment has been given; the signature of the person
legally authorized to represent the institution or firm issuing the certificate.
The banks of issue that shall, by means of assignments
or in any other manner, have disposed of a credit in
account current abroad, when their respective correspondents shall have been unable to receive notice of it at
the time the certificate was issued, must make special




338

Law

Relating

to .Banks

of

Issue

note of the fact upon the said certificate, for the precise
determination of the amounts in account current perfectly
disposable as per the terms of the preceding article.
ARTICLE 6.

The relation between foreign moneys and gold and
silver specie at the full value of Italian coin shall be
established by agreement between the minister of the
treasury and the banks of issue.
ARTICLE 7.«

The central office of inspection for the supervision of
the circulation of the banks of issue shall ascertain, at
short intervals, whether the provisions contained in the
foregoing articles have been strictly observed, and it may
examine the records and correspondence of the institutions
in order to certify the real existence of the active deposits
abroad represented by the certificates as per articles
4 and 5.
We command that the present decree, sealed with the
state seal, be placed in the official compendium of the
laws and decrees of the Kingdom of Italy, binding upon
all persons whose duty it is to observe it and to enforce
the observance thereof.
Given at Monza on this 10th day of October, 1895.
HUMBERT.
SIDNEY SONNINO.

Witness the keeper of the seals:
V. CALENDA DI TAVANI.
a In article 113, of the new Text of law, the words "inspectorate-general"
must be substituted for the words "central office of inspection."




339

National

Monetary

Commission

APPENDIX II.
ROYAL DECREE OF OCTOBER 25, 1895, NO. 639, AUTHORIZING
THE BANKS OF ISSUE TO DISCOUNT BILLS OF EXCHANGE
BEARING FIRST CLASS SIGNATURES AT LESS THAN THE
NORMAL RATE.
[Published in the Official Gazette of the Kingdom November 6, 1895,
No. 261.]

HUMBERT I, BY GRACE OF GOD AND BY W I L L OF THE
NATION KING OF ITALY.

In pursuance of article 4 of the law of August 10, 1893,
No. 449, for the reorganization of the banks of issue; and
In pursuance of article 35 of the law of August 8, 1895,
No. 486, providing for the finances and the treasury; and
In pursuance of article 26, Appendix P, approved by
article 26 of the said law of August 8, 1895; and
Upon the proposal of the minister of the treasury;
We have decreed and do hereby decree:
ARTICLE 1.0

The banks of issue, with due consideration of the funds
at their disposal and the condition of the market, and
provided the amount in circulation of their respective
notes does not exceed the normal limits laid down in article
2 of the law of August 10,1893, No. 449, are hereby authorized to discount at a rate less than the normal rate—to be
determined every three months by ministerial decree, in
agreement with the banks of issue, but which can be in no
case less than 3K P e r cent—bills of exchange presented
a For article 2 of the law of August 10, 1893, No. 449, must be substituted
article 6 of the new Text.
For the determination of the reduced rate see article 8 of the aforesaid
Text.




340

Law

Relating

to Banks

of

Issue

and guaranteed by commercial and banking signatures of
the first class, which shall fall due not later than three
months from the date when the discount is made.
A R T I C L E 2.

Absolutely excluded from this concession,
foregoing article, are bills of exchanp-p
totally or partially, extending
payment of the debt, ~
resulting from tV

The
operation
corded in sep
least an r"
the said committer.
The director of the bra*.
cursale) may suspend such a ac
without delay to the Board of Direcu
A R T I C L E 4.«

The portfolio of bills of exchange discount*
formity with article i must be kept separate a
tinct both from the ordinary portfolio and from th
the discount operations as per the third paragrap
article 4 of the law of August 10, 1893, No. 449.
a For the words " t h i r d paragraph of article 4 of the law of August
1893, No. 449" must be substituted "article 28 (3d and 4th paragraphs),
the t e x t . "




341

National

Monetary

Commission

ARTICLE s-a

The portfolio of the bills of exchange discounted in
accordance with the terms of the present decree shall be
* ^ t to verifications by the central inspection bureau
^ury. The officials charged with the verifi* Uberty to examine the special records
"
"nt committee with a view to
- comparing them with
*




^led with the
~ of the
»
ipon
d to

..BERT.
SIDNEY SONNINO.

^VANI.
,c;w text the words "inspectorate-general" must
.cral inspection b u r e a u . "

343

Law

Relating"

to Banks

of

Issue

APPENDIX III.
ROYAL DECREE OF FEBRUARY 9, 1908, NO. 62, REGULATING
THE DISCOUNT BY BANKS OF ISSUE OF BILLS ISSUED BY
THE OBLIGATORY ASSOCIATION FOR THE SICILIAN SULPHUR INDUSTRY TO THE AUTONOMOUS BANK OF MINING
CREDIT FOR SICILY.
[Published in the Official Gazette of the Kingdom February 29, 1908,
No. 50.]
VICTOR EMMANUEL III,

BY GRACE OF GOD AND BY THE

W I L L OF THE NATION KING OF ITALY.

In pursuance of the'article 13 of the law of December
31, 1907, No. 804; and
With the consent of the council of ministers; and
Upon the proposal of our secretaries of state for agriculture, industry, commerce, and the treasury, and in
agreement with the minister of finance;
We have decreed and do hereby decree:
ARTICLE 1.

The obligatory Sulphur Association of Sicily may
issue, in favor of the Autonomous Bank of Mining Credit,
bills of exchange to an amount not exceeding threefourths of sums for which it may by regular contract be
creditor to any party for sales of sulphur.
Upon such bills of exchange there must be indicated
the date and the terms of the contracts and the quantity
of the sulphur sold.
ARTICLE 2.

The amount of such bills of exchange shall be turned
over by the Autonomous Bank of Mining Credit to the
Bank of Sicily, which is the cashier of the sulphur association, and entered by the said bank in the account




343

National

Monetary

Commission

current as per article 12, second paragraph, of the royal
decree of July 22, 1906, No. 378, to be distributed among
the producers in the association and among other interested parties according to the rules in force.
ARTICLE 3.
The banks of issue are authorized to discount at a
preferential rate such bills of exchange for a term not
longer than four months.
On the price which, by the terms of the contract, shall
be paid by the buyer upon delivery of the mineral, the
institution holding the bills has the right of preference up
to the amount of the credit due on the said bills.
In pursuance of the preference, the part of the price
equal to that advanced to the association by the institutions must be placed in a special account current which
the Bank of Sicily, as cashier of the association, shall
hold at the disposition of the contributing institutions,
after regular notification of their credit has been made to
the said bank in the aforesaid capacity.
ARTICLE 4.

The banks of issue are likewise authorized to discount
at preferential rates of interest bills at not more than
four months, issued by the Autonomous Bank of Mining
Credit, on receipt of certificates of deposits and warrants
on sulphur, in amount equal to the value of bills to be
discounted.
The Bank of Mining Credit and the Bank of Sicily in
its capacity as cashier of the sulphur association, shall
fix by agreement the rules for the eventual replacement




344

Law

Relating

to Banks

of

Issue

of any certificates of deposit and warrants which may
become void before the discounted bills fall due, and for
insuring the payment of the said bills.
We command that the present decree, sealed with the
state seal, be placed in the official compendium of the
laws and decrees of the Kingdom of Italy, binding upon
all persons whose duty it is to observe it and to enforce
the observance thereof.
Given at Rome on this 9th day of February, 1908.
VICTOR EMMANUEL.
GIOUTTI.
CARCANO.
F. COCCO-ORTU.
LACOVA.

Witness the keeper of the seal:
ORLANDO.




•9

345


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102