The Online Library of Liberty

A project of Liberty Fund, Inc.

• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

PART II.

BANKING IN ITALY.

CHAPTER I.

PRIMITIVE BANKS.

THAT Italy is the native country of banks is amply evidenced by the common acceptance of Italian terms in banking parlance. It is highly interesting that two of the primitive Italian banks are still in existence, though much modified, the Banco di Napoli and the Banco di Sicilia. The objects of the first banks are perfectly indicated in distichs inscribed beneath two statues by Bernino adorning the front of the Monte di Pietà at Naples (the Bank of Naples):

• Forsan abest misero signata pecunia civi
• Atque illum interea tempora sæva premunt,
• Nummorum huic operi ingentes cumulamus acervas,
• Pignore deposito, quod petit inde damus.
• Si quis amat brevibus cante persolvere chartis
• Aut timet insidias furis et arma domi
• Congerite huc aurum, placidas et carpite somnos
• Per me stcuros civibus esse licet.

THE MONTE VECCHIO.

In 1156, the Venetian Treasury found itself exhausted, and the Doge Vital Michel proposed to levy a forced loan on the wealthiest citizens, assuring four per cent. interest to the creditors. This was the first instance of a public debt. The lenders were given a kind of semi-official status and, under the guaranty of the State, were authorized to open a deposit establishment which issued orders payable in ready ducats of a fixed standard. This institution was called the Monte Vecchio.

Loan and pledge establishments, or Monts de Piété and deposit offices, were the original banks of Italy. The oldest appears to have been the Bank of Venice, or Bank of St. Mark’s. The Mont, says the celebrated historian Cesare Conti, was one of the instrumentalities wherewith the Italian republics sought to provide for urgent needs by establishing State debts. The credits issued by the Mont offered their holders more safety than even the metallic moneys, which could always be debased, and they circulated freely. The Government used them exclusively for its payments. The transactions attained larger dimensions in the course of time, and the Monte Vecchio had the distinction of making transfers of funds by signature (giro)—a species of modern banking instrument. To this ancient Mont, the Venetians added, in 1580, the Monte Nuovo, as an aid for carrying on the war with Ferrara, and later (after the Seven Years’ War) the Mont Nuovissimo. The remains of these concerns served for the construction of the Bank of Venice, which endured until the fall of the Republic.

THE BANK OF ST. GEORGE.

The creation of the Bank of St. George is a very remarkable landmark in history. Genoa, says C. Conti, was formerly accustomed to cede certain revenues to the State’s creditors. In 1345, a “Chapter” was formed, with the necessary employees, and the debt was divided into shares of 100 livres which could be sold and transferred. As the collection of the different taxes was intrusted to different officers, the expenses consumed the profits. To simplify matters, the various branches of the service were consolidated into a single “College,” composed of eight members, which adopted the name of Bank of St. George. The members of the college were appointed by the creditors of the State, and were to render their accounts to one hundred selected creditors. Each administrator of the bank had the title of Consul. Every credit of 100 livres was called a lieu+̆ (place). Each creditor was a locataire (holder), and a certain number of credits united under a single head constituted a column. Purchases, or writings, were the total of lieu+̆s, which were styled Monts at Florence, Rome, and Venice. The taxes set apart for the payment of lieu+̆s produced seven per cent. net. The lieu+̆s were recorded in eight registers, corresponding to the eight departments or wards of the city, subdivided for the palaces of the nobles and the lodgings of the bourgeois.

When this separation was abolished, in the 17th century, the records were made up without distinction of classes, and the creditors received coupons bearing their names and the notary’s signature. No bills could be put into circulation unless their value was represented by coin, and all paper was payable at sight out of money kept in the sacristies, where many people deposited their savings, and also out of the sums intended for public charities.

The supreme direction of the Bank of St. George was assigned to eight protectors, who, when necessary, associated with themselves eight procurators, eight members of the office of the forty-four, and four syndics, or comptrollers. The protectors summoned annually a Grand Council of 480 holders, half of whom were designated by lot and half selected by ballot. The magistrates of the Republic were required to take an oath to maintain the inviolability of the bank. This society prospered, being less corrupt than others. It was regarded as a promoter and conservator of peace. Its credit grew steadily, especially from the time when the Republic, unable to maintain the defence of Caffa against the Turks and Corsica, ceded those possessions to it. Thus the establishment of St. George was at once a commercial bank, a State depository for the revenues, a contractor for the taxes, and a political custodian. The large increase of State indebtedness caused the Government to pledge to the bank the sovereignty of St. George in Genoa and of Justiniania in Chios. The bank was pillaged by the Austrians in 1746; but it recovered and continued in existence until 1800, when it was destroyed by the French.

THE MONTE DE PIÉTÉ OF NAPLES.

The Bank of Naples is a credit institution formed by the consolidation of several charitable establishments, the oldest of which was founded in 1540. Up to that date, says Eugenio Tortora,* money loans were made only by the Jews, for they came under the condemnation of the Catholic Church as usurious. An edict issued by the Emperor Frederick (13th century) authorized the Jews to take ten per cent. interest, but in 1507 Ferdinand the Catholic deprived them of all right to institute legal action against borrowers, so that as these lenders could rely no longer upon the security of written instruments, they were brought to the necessity of insisting on personal property as pledges.

On the occasion of a visit by Charles V. to Naples, the Grand Seigneurs, desiring to tender him a magnificent reception, pledged all their personal property and silverware to the Jews. The latter made very hard conditions and realized exorbitantly. After the King’s departure, the borrowers complained of the extortions they had suffered. Their clamors were so loud, and public opinion sided with them so decidedly, that the Viceroy, Don Pedro de Toledo, promulgated in 1540 a stringent edict commanding the Jews to quit the city and kingdom at once. The edict was carried out to the letter. But, after the expulsion of the Jews, it became necessary, in order to obtain loans, to apply to rich Christians, who did not scruple to exact an interest even higher than that charged by the Jews. As a corrective for this state of things, two philanthropic men, Aurelio Paparo and Leonardo di Palma, instituted, in 1539 or 1540, with their own capital, a house called the Sacro Monte della Pietà. They made loans on pledges by individuals, opening an office where free loans were granted on values below ten ducats, with very moderate rates for higher amounts. Soon, the house of the two founders was unable to accommodate the business done, and the Mont de Piété had to be transferred to the Foundling Asylum, or Santa Annunziata. The directors of the asylum became protectors of the Mont de Piété. During the first years of its existence the Mont de Piété was supported by small sums raised by collections and by gifts from persons taking an interest in the good work. Gradually these sums accumulated. Countess Carrafa and Cardinal Acquaviva made fine donations which enabled the concern to enlarge its loan transactions and to engage in charitable enterprises, such as the releasing of persons imprisoned for debt, the granting of dowries to poor children, the ransoming of captives taken by the Berbers, etc. Wills drawn in favor of the Mont de Piété specified that the legacies should be devoted to these and similar uses.

APODISSARY ACCOUNTS.

In 1573, the Mont de Piété inaugurated quite a novel system, the apodissary service (from the Greek αποδεικτος, demonstrative, meaning that the books were so kept as to clearly exhibit the nature and state of the account). This service consisted in the opening of current accounts (madrefidi), in transfers of funds by drafts (giro) and instruments resembling cheques (fédi di credito), and in issuing orders for money payable at sight (polizze di credito), etc. The Mont de Piété had become a bank with a circulation, and acquired considerable importance in the economic organization of Naples.

Its success stimulated imitation; and, in 1563, an association named the Santa Maria del Monte dei Poveri was started by a lawyer with the object of liberating imprisoned debtors. Its capital, very meagre at the beginning, was made up by subscriptions and by alms gatherings. As late as 1860, its representative, wearing a hood that hid his face, could be seen soliciting alms in the churches and streets. He cast the moneys given him into the peculiarly constructed boxes in the churches, for which he had no key. In 1583, twenty-nine noblemen, at the instance of Brother Paolino da Lucca, organized an association for the relief of prisoners and the modest poor. It called itself the Compagnia del Santo Nome di Dio (Society of the Sacred Name of God). It had for some years much competition with the Monte dei Poveri. The two united in 1599, taking the name of Monte dei Poveri del Santo Nome di Dio. This establishment gradually became one of the richest of Naples. The Annunziata Asylum, which had sheltered the Mont de Piété in its early career, sought in turn to engage in banking enterprises, and at a date that cannot be determined exactly, between 1577 and 1587, began operations as the Banco Ave Gratia Plena, or della Santissima Annunziata. In 1589, the Asylum for Incurables opened a bank known as the Banco Santa Maria del Papolo. Later, on the same model, there were the Banco del Espiritu Santo, the Banco Sant’ Eligio, the Banco San Giacomo, and the Banco del Santissimo Salvatore, conducted on a partly charitable, partly financial basis. All this appears strange to modern economists; but such institutions nevertheless played an important part and are the legitimate ancestors of the banks of issue.

Their practical functions were of wider range than those of our present banks. They had a royal official capacity and discharged the duties of exchange agents, auctioneers, commissioners, and, in a large way, notaries. The “apodissary” service, which has been alluded to, comprehended current accounts and the issuing of bills payable in specie held by the bank; which was an advantageous improvement on the old plan of giving back the identical coins received. The banks of Naples—and this is an important fact in the history of credit—never acknowledged themselves to be depositories of money in the narrow sense of the word—i. e., under obligation to return the specie as it was delivered to them—but claimed to have the mere character of debtors for certain amounts of money of determined weight and standard taken into common deposit. The loan service was substantially confined to advances on articles of gold and silver, on merchandise, and finally on clothing and household effects.

A BANKING MONOPOLY ESTABLISHED.

In 1580, the Viceregal Government devised a banking monopoly, to be granted for twenty years to four merchants, who should have exclusive right to establish houses and offices for money transactions. By this scheme, the Mont de Piété alone was to continue. The object of the Government was to draw a large sum out of the monopoly. As soon as the law was made known, all the bankers who were not admitted into the monopoly, and whose business had to cease, entered protest, and their complaints reached the ears of Philip II. He had given his consent to the monopoly with reluctance, and he accordingly suppressed it in 1583—but without returning the 600,000 ducats that he had received for it.

DEBASEMENT OF MONEY STANDARDS.

In the history of these old banks it is interesting to note their struggles against difficulties resulting from the continual alterings of moneys. Their fédi and polizze di credito specified that repayments should be made in money of a determined weight and standard; but usually weight and standard underwent change when the day of reckoning came. They received from their borrowers money of changed character in repayment of advances, and had to give out unexceptionable money to their book (apodissary) creditors. In 1622, they suspended payments, and their offices remained closed until an order from the Viceroy forced them to open again. The terms of this order reduced the amount of credits by one-third, and directed the payment of the two-thirds in bonds bearing five per cent. interest, while the moneys forming the cash stock of the banks had to be reduced to the new standard. To compensate the banks for the losses they had sustained from the alterations of coins, the Viceroy allowed them, in 1623, an income from the taxes amounting to 46,430 ducats out of a total of 773,871 ducats. This income, added to the assets left in the banks, was to be employed for settling the credits that had been reduced to two-thirds. The banks not only had to suffer from the ignorance and bad faith of the Government, but, notwithstanding their charitable objects, they were sacked by the mob. In 1647, in Masaniello’s insurrection, only the Mont de Piété was spared. In consequence of these robberies, the non-payment of the tax income and the misdeeds of the Duke de Guise, captain of the people, who seized the largest part of the coin remaining, all the banks ceased their service. In 1656-57, a public calamity brought them relief. The pest attacked Naples and raged with great fury. The personal effects of the sick and dead were burned without discrimination; and thus large amounts of fédi di credito were destroyed, which the banks, consequently, were never called on to redeem.

ANOTHER CRISIS IN NAPLES.

The death of Charles II., in 1701, precipitated another economic crisis in Naples, which imperiled the banks and completely ruined the Annunziata Bank. Charles II., who was childless, had left his vast possessions to a French Bourbon prince, Philippe, a nephew of Louis XIV., and it was known that the House of Austria would not quietly submit to this disregard of the Spanish succession. A war between France and Austria was imminent, in which the Kingdom of Naples, as a Spanish possession, could not fail to be involved. All the holders of fédi and polizze demanded their exchange in gold and silver. The banks took various steps to delay payments, and succeeded in calming the panic. But the necessity of definitely determining their available resources led to discoveries of great defalcations in the Annunziata, the Bank del Salvatore, the Bank of San Giacomo, and the Monte dei Poveri. The Annunziata’s deficit was too large to be covered, and the establishment failed and passed out of existence. The institutions surviving the trouble regained strength, and in 1793 they had on deposit sums equivalent to more than 100,000,000 francs, and their capital aggregated 60,000,000 francs.

MISFORTUNES TO THE OLD BANKS.

But in 1794 began sad misfortunes for the old banks. Ferdinand IV. allied himself with Austria in the war with France, and as he lacked means for armaments, he laid hands on the money deposited in the banking houses. He then consolidated them under a syndicate arrangement controlled by the Government, and compelled them to issue more than 140,000,000 francs of paper currency. The banks were unable to recover from this shock, despite all the measures taken to reassure the public. French rule took the place of the Bourbon in 1805. As it was not within the province of the new government to restore to the banks what the old dynasty had taken away, plans were considered for re-establishing confidence, but without successful issue. All the banks were brought under a common régime, and discount business was added to that of loans on pledges. Next, it was attempted to create a discount bank on a joint-stock basis. Murat, to furnish an example, subscribed for the first shares; but the undertaking was a failure. When the downfall of Napoleon permitted the Bourbons to return to Naples, one of the first efforts of Medici, Minister of Finance of the reinstated dynasty, was directed to bank reorganization. The bank now became an institution for affording the Government the use of private money.

THE BANK OF THE TWO SICILIES.

A decree of December 12, 1816, created the Bank of the Two Sicilies, with two divisions, one for individuals and the other for the Court. The first division was organized by six of the old banks, and the second was a successor to the Bank of San Giacomo. The Government had returned to the banks the property sequestrated by the French administration so far as it had not been sold. The “Individual Division” received private deposits and used them to make loans on pledges, such as articles of gold or silver, metals for manufacturing purposes, jewels, clothing and stuffs. The “Court Division” was a depository for all the receipts of the Treasury, and conducted the Treasury’s payments. Connected with it was a special department for the discounting of Treasury certificates and commercial paper of individuals. Individuals had the privilege of depositing their funds in the Court Division. The Individual Division was under the supervision of the Government as a whole, and the Court Division was controlled by the Minister of Finance. The bank was conducted by a regent and presidents, and by governors appointed by the King. No guaranty was given to private persons for their deposits. The permission granted them to place their funds in the Court Division gave rise to confusion between private interests and those of the Treasury, which was increased when, in 1824, a second Court Bank was established to receive deposits and make loans on the collateral of gold and silver articles, and also to operate the Individual department of the Court Division. A decree of June 25, 1818, was a further instance of the State’s meddling. It contemplated bringing into activity the discount bank that had been promised for two years, and authorized the Treasury to loan 1,000,000 ducats (4,250,000 francs) to this bank at nine per cent. which, later, was reduced to six per cent., on condition that the loan should be redeemed out of the profits. It was natural that the Government should wish to control the bank’s management, but the decree of 1818 had nothing less in view than to give the Minister of Finance absolute power over that institution. He had authority to fix the rate of discount, and was to be informed weekly as to transactions; he was privileged to allow discounts above the credits provided for in the regulations, and he could change the regulations at will. But it was not mere caprice that actuated the Minister of Finance in making these provisions. He sought in the discount bank a means for sustaining the floating debt of the State, and of avoiding the negotiation of Treasury certificates in the open market. These certificates were discounted by the bank at scarcely two per cent. The Treasury often issued bonds and sold them to the bank to escape the need of placing them on the Bourse. Besides, the bank discounted large quantities of mercantile bills of exchange, which were given it in payment for customs duties. It was, in short, a credit institution at the service of the Treasury, using the moneys of private individuals for the purpose. To review all the successive requirements to which it was subjected would be superfluous; they were amplifications of the decrees of 1816 and 1818.

The bank, having become distinctly transformed into an annex of the Treasury, subsequently lost entirely the character of a deposit and loan institution for the public. Private deposits were in a large measure absorbed for State operations. The paper issued by the Discount Bank had the same offices as the receipts that had already been issued to individuals for deposits and that circulated in the whole kingdom. It no longer could be doubted that the bank was a Government institution when the management of the Mint was intrusted to it. It did not, however, lose public confidence, and private deposits continued to flow in. The faith thus displayed, which appears unaccountable, was due to various causes. The deposit certificates (fédi di credito) enjoyed quite special privileges. When indorsed, all kinds of transactions could be effected with them, even sales and purchases of real estate—whatever the value—without obligation to use stamped paper or to make them of record. The day of the return to the bank of the fédi di credito was the absolute date for completion of the transaction. These bank vouchers were regarded by the Naples people as extremely useful. The bank also rendered gratuitous services to depositors in connection with their current accounts. Commercial houses, speculators, and all public offices made their payments through the bank, and so dispensed with keeping cash on hand. The State offices were required to receive the certificates the same as coin, and in the provinces the State officials had to pay coin for them. In a country having no other credit institution, such privileges were of great importance. The circulating medium in the Neapolitan provinces was almost entirely silver. Gold money had never been abundant, and for large amounts the bank’s paper was preferred. Moreover, there was no other establishment to receive deposits of funds, as the Government had not permitted any opposition bank to be created. Last of all, the State practically guaranteed the debts of the bank. These were the conditions that enabled the bank to preserve its credit.

THE BANK OF SICILY.

The Bank of the Two Sicilies had offices, or departments, at Messina and Palermo. The Revolution of 1848, which began at Palermo, interrupted for a time the relations between the Naples and the Sicily institutions, which compelled the latter to suspend payments after having exhausted the metallic reserve and issued a large volume of fédi di credito with a forced currency. When the absolute power of King Ferdinand II. was restored, a commission was appointed to verify the accounts of the Bank of Palermo, and it found assets amounting to 25,924 ducats and liabilities reaching 3,854,107 ducats. The deficit was provided for by sales of income bonds; but the Neapolitan banks remained unprotected for heavy amounts owing by the Sicilian bankers. The events of 1848 led to the separation of Sicily, administratively, from the Continent. The two offices of Palermo and Messina became known as the “Royal Bank of the King’s dominions beyond the Straits.” The general management of this bank was assigned to a college, composed of one director, three governors and a president, and the president and governors of the old Messina Bank. The State engaged to pay an annual subvention of 36,813 ducats, to be raised to 39,668 ducats if the bank would, as promised to the King, add discount transactions to the open account service. Therefore, out of the old Bank of the Two Sicilies came two new institutions, the Bank of Naples and the Bank of Sicily.

CHAPTER II.

BANKING UNDER THE UNIFICATION OF THE KINGDOM.

NATIONAL BANK OF THE KINGDOM OF ITALY.

WE have now arrived at the period of the unification of the Kingdom of Italy. For this period, we take, as our principal sources of information, the work of Signor G. B. Salvioni, the Report on Banking Inspection, and Parliamentary documents.

From the beginning of the unification of Italy, one bank took a commanding position—the Banco Nazionale del Regno d’Italie (National Bank of the Kingdom of Italy). It had its origin in the fusion of two banks created by letters patent of March 16, 1844, and October 18, 1847, at Genoa and Turin. They were chartered for twenty years, and were authorized to operate as banks of issue and to perform discounting transactions, take deposits, and transact current accounts. They had each the same by-laws and regulations. In 1849, they agreed to unite. The Government consented, and the resulting institution took the name of National Bank of the Sardinian States. Its privilege was to run thirty years, and its main office was at Genoa, with a branch at Turin. On July 11, 1852, its capital was raised from 4,000,000 to 32,000,000 lire, and it was empowered to introduce branches in the whole of Sardinia. After the Conquest of Lombardy, in 1859, the Sardinian National Bank was granted authority to extend its business to that country. It opened a branch at Milan and expanded the capital to 40,000,000 lire. Presently, the Duchies of Parma and Modena, and the Papal States, were annexed to the new Kingdom of Italy. In the State of Parma there was in existence a bank of issue of quite modest pretensions, and in the Papal States the Bank of the Four Legations, established in 1857. These two banks readily permitted themselves to be absorbed by the National Bank, which, by a decree of February 24, 1861, had its scope extended to Central Italy. Upon the annexation of the Neapolitan States it opened branches in Naples and Palermo, with the right to start others in the Neapolitan and Sicilian provinces. In 1865, it inaugurated a branch in Florence; but, in spite of all endeavors, it could not persuade the National Bank of Tuscany to join with it. At that time, the National Bank of the Sardinian States, which had changed its name to National Bank of the Kingdom of Italy, had 100,000,000 lire capital. The triumphant war of Prussia against Austria gave Italy possession of Venetia in 1866. The National Bank immediately established itself in Venice, taking over a chartered bank, the Stabilimento Mercantile Veneto, which had existed since 1853. Thus the National Bank reached out for a monopoly; but two credit institutions, the National Bank of Tuscany and the Tuscan Bank of Credit for the Industry and Commerce of Italy, still refused to succumb to it.

THE BANKS OF TUSCANY.

Tuscany was always a hospitable region for the growth of banking. The oldest Tuscan bank of issue at the time of Italy’s unification was the National Bank of Tuscany, founded in 1816 by an act of manu propria of the Grand Duke. Dissolved in 1826, it was replaced by a stock company, which obtained the right of issue for ten years on a tripled capital. The new capital of 1,000,000 Tuscan livres increased later to 1,125,000 livres. The concession was renewed at the end of each ten years until 1858. Besides this Florentine concern, there was a Leghorn Bank, created in 1837, that possessed a capital of 2,000,000 Tuscan livres and had power to issue bank notes for thrice that amount, on the condition that they should not be more than thrice the metallic coin stock. The right of issue was to expire December 31, 1858, at the same time with that of the Bank of Florence, so that the Government might effect a consolidation of the two if it so desired. Less important banks had sprung up—the Bank of Sienna in 1841, Arezzo in 1846, Pisa in 1847, and Lucca in 1850; and at the beginning of 1859 Tuscany consequently had six banks. The Tuscan Government deemed it useful to have a more powerful institution by merging together the Banks of Florence and Leghorn and giving the new bank authority to conduct branches throughout the Duchy. Permission was accorded the other existing banks to become branches of the new establishment, but they were not required to do so. Before this arrangement could take effect, the Grand Duchy was overturned and Tuscany became an Italian province. A decree of the Provisional Government, in 1860, ordered a fusion of the Banks of Florence and Leghorn under the new title of National Bank of Tuscany, and designated the smaller banks as branches. The National Bank of Tuscany did not, however, have the field to itself. On March 12, 1860, a competitor appeared, taking the rather formal name of Tuscan Bank of Credit for the Industry and Commerce of Italy. It nominally had 40,000,000 lire of capital, but really only 5,000,000. The wide range of its by-laws indicated that it purposed engaging in great undertakings, but it had little development and opened no branches. Therefore, at the period of Italian unity there were five banks of issue—the National Bank, the two Tuscan banks, the Bank of Naples, and the Bank of Sicily.

THE BANKS AND THE UNIFICATION DRAMA—FORCED CURRENCY.

The banks were soon to play an important part in the unification drama. On May 1, 1866, a royal decree provided for the forced circulation of the notes of the National Bank of the Kingdom of Italy, and imposed upon the bank obligation to loan the State 250,000,000 lire, to meet the expenses of the impending campaign against Austria. The bank notes, cash certificates, orders, etc., of the other banks of issue were to be received as legal tender by individuals and the public offices, and their redemption was to be accomplished in National Bank paper. As the War of 1866 had given Italy possession of Venetia, so the Franco-Prussian War gave her the residue of the Papal States and terminated the work of unification. In Rome, the Italian Government found in operation a Bank of the Pontifical States, created in 1833, and holding an absolute monopoly of the right of issue and of all banking business. Reorganized in 1850, its capital had been fixed at 1,000,000 Roman écus (5,375,000 francs); but it began business with a subscribed capital of 600,000 écus, in the hope that the remaining 400,000 écus would be taken up later. Its affairs were badly conducted. It did not redeem its paper at sight, and gave only time obligations for it. On November 4, 1866, an investigation demonstrated that the bank’s capital was gone, and that the difference between assets and liabilities was more than 7,000,000. A decree by the Papal Government declaring the bank notes to be under State guaranty became necessary, but repayments were made only at the rate of 6000 écus per day, and no holder of bank notes could receive more than twenty écus. At the end of 1869, the circulation amounted to 30,000,000 and the coin stock 11,000,000. The Italian Government, upon entering Rome, recognized the legal currency of the Papal State Bank’s notes within the province of Rome, reformed the by-laws by decree of December 2, 1870, and gave the institution the name of Roman Bank, which has since acquired such unenviable notoriety.

SYNDICATE OF BANKS OF ISSUE.

For the sake of chronological order, we have interrupted our recital touching the forced currency, in order to explain the appearance of a sixth bank of issue. We now proceed to consider the consequences of the paper money régime.

By the decree of May 1, 1866, a peculiar and favored position was made for the National Bank of the Kingdom of Italy, since the other banks had to redeem their notes with the notes of the National Bank. This arrangement was oppressive for the other establishments, because the National Bank was not bound to redeem its own paper in coin, and acrimonious reflections were called forth, especially on the part of the Bank of Naples. Conditions remained on that basis for eight years, until modified by the law of April 30, 1874. The Government, which had borrowed 300,000,000 lire in notes from the National Bank on April 19, 1872, sought, in 1874, to borrow an additional amount of 1,000,000,000 lire. Not being able to raise such a sum from the National Bank alone, it organized a syndicate of banks of issue, composed of the National Bank of the Kingdom of Italy, National Bank of Tuscany, Tuscan Bank of Credit, Roman Bank, Bank of Naples, and Bank of Sicily. The six banks were to put at the disposal of the Treasury 1,000,000,000 lire in syndicate bank notes, which should have forced currency, be printed on white ground, and be of the denominations of ½, 1, 2, 5, 10, 20, 100, 250 and 1000 lire. The syndicate banks were to be jointly responsible for the total of the syndicate bank notes, and individually in proportion to their capital and patrimoine. The State was to give the banks a sufficient amount in registered consols to guarantee the syndicate bank notes. Independently of the syndicate paper, each bank could issue its own notes to an amount not exceeding thrice its metallic coin stock, or thrice its capital. The separate notes of each bank were to be legal tender in the provinces where the bank, its branches, and its exchange bureaus were located. Redemption had to be made either in specie or syndicate notes. With regard to the notes of other banks held by each bank, they were to be settled by exchange and clearings (Riscon strata). For this purpose, on every Thursday all the banks, their branches, and their agencies remitted to one another the bank notes, cleared them, and made good the balances in syndicate paper, or acknowledged them by receipts in duplicate. The exchange vouchers and one of the originals of each receipt were sent to Rome, so as to arrive there on Monday, or Rome was advised by telegraph. By this process, the agents of the banks in Rome were kept informed of the condition of each establishment. After verifications and clearings, the balances were made good on Monday, with four days’ interest, or by means of seven days’ orders, bearing interest from the previous Thursday, the interest being figured in each case at the discount rate of the creditor bank. If, accidentally, there should be an accumulation of notes, the debtor bank could make special arrangements for clearance.

The forced currency of the notes was to endure two years, expiring May 22, 1876. But on March 18, 1876, Signor Depretis and Signor Majorana Calatabiano proposed to Parliament an extension to 1877; and further postponements were made up to June 30, 1881.

DISSOLUTION OF THE SYNDICATE.

The law of April 7, 1881, which provided for abolishing the forced currency after June 30th, dissolved the bank syndicate. The syndicate notes in circulation were considered a Government debt and remained legal tender in the whole kingdom, but were redeemable in coin on presentation. Such notes as reached the public offices were canceled, excepting the five-lire scrip, which were withdrawn only to the amount of 105,400,000 lire, and the ten-lire, which were kept in circulation. The excepted notes were to be redeemed from the surplus of the budgets. In order to compass the re-establishment of free currency, the Government contracted a loan of 644,000,000 lire, of which 400,000,000 lire at least was payable in gold. Of this amount 340,000,000 lire was deposited with the Department of Deposits and Consignments to guarantee the State’s paper. The Act of April 7, 1881, specified December 31, 1889, as the date of expiration of the privilege of issue, and retained the legal-tender quality, which lasted until the expiration of the charters.

A NEW SOURCE OF TROUBLE.

We now come to an unfortunate period in the history of the Italian banks. The rupture of the commercial treaty with France and the settlements for Italian securities held in great quantities in France gave Italy much embarrassment. Up to that time, the balances of her exports into France had permitted her to settle without remittances of cash for the coupons of her bonds held in that country. But after the French holders had disposed of the Italian bonds (which were largely bought up in Germany), and the two countries had enacted prohibitive customs tariffs against each other, Italy could no longer adjust her debts by such methods. Profiting by the stipulations of the Latin Monetary Union, she sent to the French bankers five-franc pieces and drew bills of exchange on them, which she forwarded to the German creditors. These bills of exchange were drafts on Germany, or gold drafts. As long as Italy had five-franc pieces she suffered no serious difficulties; but this resource was finally exhausted, whereupon her fractional coins disappeared into France. In the course of time, therefore, the Italian circulation was deprived entirely of metallic money, even of ordinary coin needed for every-day trade. Italy found herself reduced to the necessity of buying back and paying in gold for the coin that had gone to her monetary allies. At the same time, when Italy was distressed by these various troubles arising from unfavorable foreign balances, she had to pass through one of the worst of crises, the consequences of which still burden her severely.

A BUILDING CRISIS.

The Government, anxious to cultivate a high estimate of the country’s vitality, had given marked encouragement to building operations in Naples, Rome, and other cities that were being rehabilitated. Several important associations had been set on foot for real-estate enterprises. The National Bank of the Kingdom had added to its ordinary business the real-estate mortgage service, which was also practised by other banks, particularly those of Naples and Sicily. These undertakings had appealed extensively to foreign capital. As matters grew more involved, and Italian credit became a subject of criticism, lenders became apprehensive and withdrew their money. A conspicuous Roman real-estate association, the Squilino Enterprise, found itself, by the end of 1887, in threatening circumstances. Its obligations, to the amount of 37,500,000 lire, were in the portfolios of public and private banks. Perceiving itself on the verge of ruin, it applied to its creditors, who, under the auspices of the Bank of Naples, formed a syndicate to supply it for one year with a sum equivalent to its indebtedness. The National Bank, as a creditor of the Enterprise for 4,000,000 lire, agreed, at the urgent solicitation of the Government, to loan an additional 10,000,000 lire. After the Squilino Enterprise had been saved, the National Bank had to come to the relief of the Tiber Bank, whose assets and liabilities it took in charge for liquidation under pressure from the Government. This was in 1889. The advances aggregated more than 59,000,000 lire. Next it went to the rescue of the Italian Mortgage Bank Society with an advance of 28,000,000 lire, the Naples Building Association, which consumed 16,000,000 lire more, and some other concerns of lesser consequence. The equivalents given for these various advances consisted chiefly of houses that were hard to sell or even to rent, and, at the present time, the indebtedness owing to the former National Bank, which has passed to the Bank of Italy, is far from settlement. Finally, as a further example of how little the Government cared for sparing the resources of the banks, Signor Crispi forced the National Bank to make a loan of 4,000,000 lire to the Negus of Abyssinia on the simple signature of his envoy, Makonen. A single statistical instance will suffice to illustrate the great gravity of the situation of the banks: On January 10, 1893, the amount of their outstanding doubtful debts reached 60,000,000 lire.

EXTENSIONS OF THE BANKS’ CONCESSIONS.

According to the Act of April 7, 1881, the concessions of all the banks were to expire on December 31, 1889. The Government was disinclined to attract attention to the subject—the more so because Italy was still practically under the forced currency system, disguised by the euphemism of legal tender. It permitted the privileges to run out, and extended the legal tender until the close of 1889; then, December 25, 1889, another law made a further extension to the end of 1891, impliedly involving prolongation of the bank charters for the same period.

Meanwhile Signor Crispi elaborated a plan of bank reorganization, which was given to committee in the Chamber on May 28, 1890, without being debated upon. Notwithstanding the rumors that began to spread as to serious irregularities in the conduct of the Roman Bank, which led to a Government inquiry, whose findings have never been made public, the concessions of the banks were renewed for 1892.

INVESTIGATION AND STRANGE DISCOVERIES.

On December 20, 1892, the Government proposed another extension for three months. An Opposition Deputy, Signor Colajonni, embraced the occasion to charge the Roman Bank with malfeasance. He declared, specifically, that a bond of 4,000,000 lire had disappeared from the bank’s portfolio; that the bank had a surreptitious circulation of 25,000,000 lire; that the most of the discounted paper was in the form of renewals, and that the administrators of the bank had abused the privileges of their position to obtain for themselves large loans. He concluded by demanding that his accusations be referred to a Parliamentary commission for investigation. The President of the Ministerial Council, Signor Giolitti, remonstrated energetically against the proposal, which he declared was insulting to the Ministry, and promised to have a thorough and searching executive examination made. The Chamber sided with the Ministry by a large majority. On January 10, 1893, the six banks were visited by inspectors. Very damaging disclosures followed. At the Bank of Naples it was discovered that there was a deficit of 2,450,000 lire in the coin stock. The Roman Bank had fraudulently issued bank notes bearing the old series. The report of Senator Finali, president of the inspecting commission, placed the fraudulent circulation of the Roman Bank at 41,000,000 lire, and the amount proved finally to be much more. The management attempted to cover up the frauds by jugglings of the debits and credits of accounts current. Besides the revelations about the Roman Bank, it was shown that all the banks had invested a considerable portion of their resources in mortgages, real estate, and the like. The amounts thus tied up were:

Senator Finali’s report concluded with these words: “Very bad and disastrous is the condition of the Roman Bank. The best of all is the situation of the Tuscan Bank of Credit, which has limited itself to a narrower sphere, although according to the programme of its organization it could, and even should, have branched out through the whole of Italy. The other four institutions—the National Bank of Tuscany, the National Bank of the Kingdom of Italy, the Bank of Sicily, and the Bank of Naples—are more or less affected by immediate needs, tying-up of funds, doubtful debts, and losses.” A feature of Senator Finali’s report that was regarded with general incredulity was the declaration that little or no evidence had been found to connect public men with the interests of the banks. At the session of March 21st, the Chamber voted to appoint an inquiry commission, consisting of seven members, to determine political and moral responsibilities. Prosecutions were begun against the director of the Roman Bank, Tanlongo, and a Deputy, De Zerbi. The latter committed suicide in prison. A storm of indignation was raised by the bank scandals and the accumulated proofs that the foremost men in politics had been corrupted by the banks. At this day, after the lapse of two years, Italy still suffers from the misdeeds of the banking institutions.

REORGANIZATION OF THE BANKS.

The Roman Bank, as soon as its frauds were disclosed, was put into liquidation and the Government assumed responsibility for its bank notes. The legal-tender function of the paper was extended to June 30th, and afterward to December 31, 1893, and a plan of thorough reorganization for the banks was prepared, which was adopted on March 22, 1893. This plan directed that there should be a consolidation of the National Bank of the Kingdom, the National Bank of Tuscany, and the Tuscan Bank of Credit, and that the new establishment should be designated the Bank of Italy.

The Bank of Italy was to take over all the liabilities of the Roman Bank as established by the inspection of January 10th, and also profit by all the assets. The privilege of issue was granted to the Bank of Italy and the Banks of Naples and of Sicily for a term of twenty years, to date from the promulgation of the act. The notes of the Bank of Italy and the Bank of Sicily were to be legal tender in the provinces where these institutions had offices; the notes of the Bank of Naples enjoying only private currency. The banks were required to dispose, within ten years, of all their existing real estate and mortgage loans, at the rate of one-fifth every two years. If they should be unable to effect the conversion of such assets into cash as provided, they were to apply resources to the purpose as follows: the Banks of Naples and of Sicily all their profits, and the Bank of Italy the non-called-in portion of its capital. The Bank of Italy was to annually set apart from its profits 2,500,000 lire as a sinking fund to settle the losses occasioned by the liquidation of the Roman Bank. These losses, estimated at 50,000,000 lire, were covered by a deposit of consols. Each year the Bank had to diminish the 50,000,000 lire total by the application of 2,500,000 lire from its profits.

Signor Cocco Ortà reported to the Chamber on June 20, 1893, upon the project. He approved the plans of the Government. The report said: “Although your committee has among its members men who are partisans of the free-banking idea and also men who believe in the principle of a single privileged and carefully controlled bank, and although the proposed solution does not conform to the ideal of either side, the committee nevertheless, by a large majority, recognizes the expediency and advantage of respecting accomplished facts and modifying as little as possible, and only in a manner compatible with the general interest, the existing status. The prevailing motive of the bill being thus approved, it remains only to fix upon such improvements as may be necessary or possible. It must be borne in mind, however, that any improvements are to make their way slowly and gradually, like all progress; and while it is never difficult to benefit definitely by experience, it is not always given to legislators to put into practice scientific theories.”

The debate was protracted, tempestuous, and rather confused. Numerous amendments to the bill were offered, some of which were adopted and others rejected.

THE CONSOLIDATED “BANK OF ITALY”

Finally, August 10, 1893, the bill was passed and became law. We present an analysis of the provisions of the act.

The National Bank of the Kingdom of Italy, the National Bank of Tuscany, and the Tuscan Bank of Credit were consolidated under the name of “The Bank of Italy,” which was to preserve all the offices of the old establishments as branches. The authorized capital of the Bank of Italy was limited to 300,000,000 lire, divided into 300,000 shares of a face value of 1000 lire. The paid-up capital of the three banks, 176,000,000 lire, was to be raised to 210,000,000 lire within six months after the taking effect of the law. The right to issue bank notes was granted to the Bank of Italy, and also the Banks of Naples and of Sicily, for a period of twenty years from the taking effect of the law.

The maximum circulations were to be:

Each year the circulation was to be proportionately reduced so as to bring it down in fourteen years to 864,000,000, thus distributed:

Any bank having, at the end of fourteen years, a circulation in excess of its legal limitation, was required to reduce it to the proper limit within three months thereafter. The circulation might, however, surpass the prescribed limit if represented by metallic values in gold bullion and advances made to the State. The notes were to be redeemable at sight in Rome and certain other named cities. They were to be legal tender for five years in provinces having bureaus charged with their redemption. Throughout the legal-tender period, the rate of discount was to be the same at all the banks, not to be changed without authority from the Government. The banks were permitted to do discounting at one per cent below the official rate on all paper presented by the popular banks, discount banks, and mortgage banks; but these specially favored discounts were not to exceed—

70,000,000 lire in the Bank of Italy.

21,000,000 lire in the Bank of Naples.

4,500,000 lire in the Bank of Sicily.

The banks were obliged to mutually receive in payment their several bank notes. The metallic reserve of the banks was to be brought up to 40 per cent. of the circulation, 33 per cent. of the reserve was to be in metallic money, and the balance in bills of exchange on foreign countries bearing first-class signatures; at least three-fourths of the metallic part of the reserve was to be in gold. The State was to print the bank notes, and the banks were to sign them, so that neither the State nor the banks could produce a completed bill. The circulation tax was fixed at one per cent., calculated on the average sum by which the circulation should exceed the reserve. At the end of two years it was to be adjusted at one-fifth the discount rate, but in no case was to go above one per cent. The excess of bills above the fixed limit or the prescribed proportion was then to be liable to a tax of double the rate of discount. The liabilities of the banks, represented by bills to order, cheques, letters of credit, etc., were to be secured by a special reserve of forty per cent of their total, to be constituted the same as the reserve securing the circulation. The transactions of the banks were confined to discounts and advances on securities, precious metals, silks, and warrants on liquors in storage. The Bank of Naples was authorized to operate as a Mont de Piété (doing a pawn business).

They were authorized to buy and sell, for cash, commercial paper on foreign countries, and to open current accounts at interest or without interest; but the interest-bearing accounts were not to exceed 130,000,000 lire at the Bank of Italy, 40,000,000 lire at the Bank of Naples, 12,000,000 lire at the Bank of Sicily.

The rate of interest allowed on deposited funds was not to be more than half the discount rate. The banks could undertake the provincial collections of the direct tax. They were obliged to make to the Treasury ordinary and extraordinary advances in the same manner as the old institutions. The Bank of Italy, Bank of Naples, and Bank of Sicily were bound to settle within ten years, at the rate of one-fifth yearly, the various accounts of absorbed banks. Transactions balanced by the reserves were considered as settled. The Banks of Naples and of Sicily were to keep all their reserves for this liquidation, except a sum not to exceed ten per cent. of the profits, which was to be applied to works of charity. As for the Bank of Italy, if at the end of two years the settlements should not have been according to the required proportion, it was to call on its shareholders for funds sufficient to make up the necessary amount of settlement; but the increase of capital was not to give rise to an increase of circulation. Any establishment not accomplishing settlements on the specified basis was to lose in circulation four times the sum not settled.

LIQUIDATION OF THE ROMAN BANK.

The principal question for solution was the liquidation of the Roman Bank. It was manifest that the Government was under very serious responsibility to the holders of the bank notes and the other creditors of that institution. The public knew that there had been a Government inspection of the bank, whose findings had never been published, and that the Government had appointed Senator Tanlongo as its director, notwithstanding information about his conduct. Added to this moral responsibility, was an actual responsibility. It was, of course, impossible to impose a loss of 60,000,000 lire upon the holders of the Roman Bank’s fraudulent paper, and it was imperative that this loss should be borne by others than the people, who, under the legal-tender law, had been obliged to take the paper without having any means of assuring themselves as to its value. The Government, unwilling to take the burden upon itself, conceived the idea of shifting it to the new Bank of Italy. Although the State undertook the liquidation of the Roman Bank, the work was delegated to the Bank of Italy, which was charged with the duty of retiring the Roman Bank’s paper and substituting its own. The Treasury deposited 40,000,000 lire of bonds to cover the circulation which the Bank of Italy would have to issue for the redemption of the notes of the Roman Bank. These bonds from the Treasury were by no means a guaranty for the Bank, but they served to circumvent the law fixing the amount of circulation with reference to the reserve. The Bank of Italy was required to appropriate from its profits yearly 2,000,000 lire to go toward the liquidation of the Roman Bank in order to wipe out gradually the losses. If the yearly quota of 2,000,000 lire should make up a total larger than the amount of the losses, the surplus (which the State at first designed to enjoy for itself) was to be added to the reserve fund of the Bank.

THE BANKS SINCE THE CONSOLIDATION.

The act which we have analyzed was very severely criticised in Italy. In their picturesque language, the people said that the Government had bound the Bank of Italy to the corpse of the Roman Bank, and that the dead would poison the living. Up to the present, these pessimistic opinions have not been justified. Yet it cannot be said that the financial situation has really improved. The restrictions placed on paper circulation were unable to survive the first effort for their removal. On January 23, 1894, Signor Sonnino, Minister of the Treasury, in a report to the King, said that the legislators, in fixing a limit for the circulation and imposing severe penalties upon the banks overstepping it, did not take into consideration that, in times of panic among the depositors of savings-banks, those establishments, holders of first-class securities, would be unable to find any help at the banks of issue, since the latter would have their hands tied by the prohibitions of the law. The Minister added that it was needful to repeal the provisions of the law limiting interest-bearing deposits and circulation. He therefore proposed that the section of the act indicating the legal relation between the metallic reserve and the circulation should be changed so as to allow an increased circulation of 90,000,000 lire for the Bank of Italy, 28,000,000 lire for the Bank of Naples, and 7,000,000 lire for the Bank of Sicily. The section obligating the banks to reduce their circulation by three-fourths of the interest-bearing current accounts in excess of 136,000,000 lire for the Bank of Italy, 40,000,000 for the Bank of Naples, and 12,000,000 for the Bank of Sicily, should be repealed. The extraordinary tax levied on banks of issue should be reduced, as well as the normal tax of two-thirds the discount rate for the bank notes above the limits fixed by law. The proposals of Signor Sonnino were sanctioned by a royal decree issued January 23, 1894. It thus happened that less than a month after the taking effect of a law which had been in course of evolution for seven years, it became necessary to modify it in one of its most essential points—i. e., to enlarge the maximum of circulation, for the restriction of which such strenuous efforts had been made. Circumstances naturally brought about other alterations in a measure which had been adopted without adequate regard for fundamentals. The requirement that the banks should dispose of their real-estate investments at the rate of one-fifth every two years was ruinous in its practical workings; for these investments consisted, for the most part, of houses and lots that would have suffered in price if precipitately sold. Accordingly, the Minister sought to render this feature less troublesome by prolonging the term of settlement from ten to fifteen years. He entered into a contract with the Bank of Italy which, as communicated to the King on October 30, 1894, provided as follows: “The Bank of Italy has engaged itself to set aside from its profits a sufficient sum each year—4,000,000 lire in 1894, 5,000,000 lire in 1895, and 6,000,000 lire each year thereafter—to provide, by the compound interest on these sums, for the settlement of real-estate investments and the liquidation of the Roman Bank. It has agreed not to distribute any dividend higher than 40 lire per year, and all profits above the dividend shall go to the reserve. It has also engaged to call on the shareholders for an assessment of 100 lire per share, and to write off 30,000,000 lire of the paid-up capital, in order to provide for eventual losses and for the taking out of an amount corresponding to the aggregate of real estate and to the transactions not in conformity with the law of 1893.”

To these requirements, so very onerous for the Bank, but quite justifiable and tending to good management, was added another heavy obligation. The Bank of Italy was charged with the task of conducting the complete liquidation of the Roman Bank at its own risk and peril. “This liquidation,” said Signor Sonnino, “must of necessity leave a loss of some 10,000,000 lire, which would fall, directly or indirectly, on the State if the Bank of Italy were not charged therewith.” By way of compensation for this burden, the Minister undertook to give to the Bank special advantages. “The Government,” said he, “considers that a recompense for the Bank would be provided, and at the same time an organic reform of great importance would be accomplished, by committing to the Bank of Italy the service of the Treasury in the provinces. The transfer of that service to our great credit institution, and the consequent extension of its organization through all the provinces, would not only lend it larger strength and procure for it sure profits, but would also save for the State 1,200,000 lire; which is not to be lost sight of in the present position of our finances.” It is rather difficult to understand how the provincial revenue service done to-day gratuitously for the State by the Bank of Italy, whose management formerly cost the State 1,200,000 lire a year, can be advantageous to the Bank; and, taking everything into account, it appears to be but a price paid, and paid dearly, for the right of issue.

The embarrassments of Italy in 1893 and 1894 were considerable. They were especially due to the rise in exchange, which, after the disappearance of the five-franc pieces, had caused the drainage of the small coin. Italy had to buy back her fractional coins from France, Switzerland, and Belgium, lock them in the Treasury vaults, and issue upon their security scrip of small denominations. This transaction will be referred to again in another place.

THE STATE AGAIN EMBARRASSES THE BANKS.

Signor Sonnino, Minister of the Treasury, reported to the King on February 24, 1894, that the monetary situation was getting worse; that the exchange of notes at the banks had almost entirely ceased; that the Treasury exchanged very few; and that it was requisite to effect a reorganization of the circulation. For that purpose, he advocated a new issue of scrip to the amount of 600,000,000 lire in denominations of five, ten, and twenty-five lire. As security, 200,000,000 lire of gold, belonging to the banks, was placed at the State’s disposal, and held in the vaults as reserve. The 200,000,000 thus taken from the banks was replaced by State notes. The State notes were to be reckoned in the cash stock of the banks the same as metallic funds; and the banks were permitted to issue the same amount of notes as before. Again, the State was debtor to the banks for a sum of 68,000,000 lire, loaned at the time of the creation of the tobacco monopoly to enable it to buy up the merchandise. The State paid interest on this 68,000,000. For returning to the Bank its own scrip in exchange for this advance, the State claimed the right to cease paying interest on this account. The banks were required by the Minister to furnish 22,500,000 of gold to provide for the advance of 68,000,000. The foregoing extremely complicated plan will be understood from the following explanations. It is the rule in Italy that the circulation shall not exceed thrice the gold on hand. Therefore, if the Government takes 200,000,000 lire in gold out of the banks, it can issue 600,000,000 of paper, and remain within the rule. But it goes entirely outside the rule when it authorizes the banks to count the State’s scrip as metallic value. The State’s paper, in the latter case, represents one-third the amount in gold; and the banks’ notes stand for one-third the value of the State’s notes: consequently, the notes of the banks are worth only their ninth part in gold. Signor Sonnino, the author of this combination, has had the courage to tell the truth, and to plainly proclaim the forced currency of the State’s scrip. “In view of the considerations that I have pointed out,” said he, “it is incumbent on us to dismiss fiction for truth. It cannot but be permitted that the Treasury administration shall be exposed to protests because of non-observance of the law relating to the exchange of bank notes.” And he formally asked for the suppression of the redemption requirement so far as State paper was concerned.

Such peculiar arrangements show how extremely difficult are the economic conditions in which Italy is placed—conditions that improve but slowly. The exchange remains high, and public distrust of the banks of issue has by no means been extinguished. It is fair to add, however, that up to date, the Government has not put into practice the plan of levying upon the coin stock of the banks.

ORGANIZATION OF THE BANK OF ITALY.

The Bank of Italy is a stock company founded entirely with capital furnished by stockholders. The Banks of Naples and of Sicily have a capital that they style “patrimony”; that is, the property of nobody. It is a unique fact in the world’s economy that there exist two establishments which play an important part in the country which they serve, and yet are res nullius.

ORGANIZATION OF THE BANK OF NAPLES.

The organization of the Banks of Naples and of Sicily differs widely from that of the Bank of Italy. Often remodeled, it was changed to its present form by a decree of October 15, 1895, whereby the new by-laws were confirmed. As these establishments have no shareholders, but only creditors, it was necessary, in each instance, to intrust their interests to a combination of local elements. We append a brief statement of the constitution of the Bank of Naples:

The administrative organization of the Bank of Sicily is entirely similar to that of the Bank of Naples. As a matter of course, the delegates from the councils and chambers of commerce of the Sicilian provinces have functions analogous to those of the Neapolitan provincial delegates at the Bank of Naples. The only differences between the two banks are in their respective transactions.

TRANSACTIONS OF THE ISSUE BANKS.

The transactions of the Italian banks of issue were narrowly regulated by the Act of August 10, 1893. Aside from certain special transactions reserved for the Banks of Naples and of Sicily, the chief departments of business are identical in the three establishments. The present regulations for the banks of issue have been in effect only since January 1, 1894. So far as the matter is of pertinent interest, we shall give the statistics for the last ten years of the old banks and the 1894 statistics of the Bank of Italy, Bank of Naples, and Bank of Sicily.

Discounts.—The banks are authorized to discount paper having no longer than four months to run, as follows: (a) Bills of exchange and drafts to order bearing at least two signatures of persons of well-known solvency; (b) Treasury bonds; (c) merchandise warrants issued by general warehouse companies legally incorporated; (d) coupons of securities that have been taken as guaranty for advances.

In 1894 the discounts amounted—

As the Italian banks do not redeem their notes in metallic values, they are at no pains to protect their coin stock by raising the discount rate. They require only to keep an eye on their circulation, and see that it does not go above the legal limit. The rate of discount is not so high as might be looked for in view of the bad state of exchange. It is remarkably stable—as will be seen from the following comparisons—and is uniform for all the banks:

We have seen that by the Act of August 10, 1893, the banks may make discounts at one per cent. below the official rate—provided the yearly total shall not exceed 95,500,000 lire—on paper presented by the popular banks and the mortgage banks, and also on warehouse certificates. A decree issued in the beginning of November, 1895, authorized banks whose circulation did not surpass the legal limit to discount, at one and one-half per cent. below the official figure, paper having no longer than three months to run, on condition that these transactions shall not embrace renewals. Such paper must be kept on separate account.

Advances.—The banks have the right to make advances, for six months at most: (a) On Italian consols and Treasury bonds, and on securities guaranteed by the State; (b) on bonds of the mortgage banks; (c) on securities, payable in gold, issued or guaranteed by foreign governments. Advances on consols and Treasury bonds at long maturity may be made up to four-fifths of their current market value. Treasury bonds at short maturity may be taken at their face value. The advances on other securities cannot exceed three-fourths of their value on ’change, and in no case three-fourths of their face value. In addition, the following may be accepted as collateral for advances: (a) National and foreign gold and silver moneys for their legal value, and gold bullion; silver bars for two-thirds of their current price; (b) raw and worked silk in twist and woof; warehouse warrants on sulphur and other merchandise for two-thirds the value; (c) warrants on liquors for half their value.

In 1894 the advances amounted to the following:

The Bank of Naples is privileged to operate as a Mont de Piété and to loan on gold and silver bullion, diamonds, precious stones and pearls, metals, and articles of merchandise for which the Council of Administration makes up a list each year. The acknowledgments are made to bearer, even if a name or any other indication of ownership appears. The rate of advances on securities is generally the same as the discount rate. The rate of advances on silk is rather changeable and depends on the amount of the yield. In general the Bank of Sicily charges a higher interest than the Bank of Italy. The Bank of Naples makes few advances on silk. The rate for other advances is the same, or one-half to one per cent. above the discount rate.

Current Accounts.—The banks open current accounts. Some are interest-bearing, others are not. If the interest-bearing accounts exceed 130,000,000 lire for the Bank of Italy, 40,000,000 lire for the Bank of Naples, and 12,000,000 lire for the Bank of Sicily, the bank note circulation must be reduced three-fourths of the excess, although, as we have shown, the limit has been enlarged by the decree of January 23, 1894. The maximum of interest allowable on current accounts is half the discount rate. From January 1, 1897, the maximum will be lowered to one-third the rate of discount. Independently of current accounts, the southern banks continue the old apodissary service and issue against security orders and certificates thus designated: (1) Vaglia cambiari and assegni bancari, transferable by indorsement, and used principally to make transfers of funds from one place to another; (2) fédi di credito, receipts for sums above 50 lire, transferable by indorsement; (3) polizzini, receipts for sums under 50 lire, transferable by indorsement; (4) polizze notatc, receipts which by successive payments have become current accounts (madre fédi); (5) lastly, drafts on foreign countries to the order of third parties.

The Bank of Naples maintains a savings-bank, which has a patrimony of its own, distinct from that of the Bank, which the creditors of the Bank have no claim to. The entire patrimony of the Bank is a guaranty of the obligations of the savings institution to third parties. The sums deposited are invested in securities of the State or guaranteed by the State, but the savings-bank can invest one-fifth of its funds on interest-bearing accounts current, upon condition that the rate of such interest be no lower than half of the rate allowed the depositors of the savings-bank.

The movement of current accounts without interest was, in 1894:

The Bank of Italy does not furnish statistics of current accounts at interest. The following are the statistics of such accounts for the Banks of Naples and of Sicily:

The apodissary service of the Banks of Naples and of Sicily, as just pointed out, consists in the issue of registered receipts, which are transferable by indorsement, and constitute a special circulation. The statement below shows the issues and payments of these orders:

Exchange Operations.—The banks buy and sell for cash, and for their own account, drafts, bills of exchange, and cheques on foreign countries; and they undertake for third parties the collection of commercial paper where they have offices or correspondents. The Bank of Sicily, in addition, conducts an accident insurance business.

On December 31, 1894, the free deposits amounted—

In 1894, the Bank of Italy sent abroad 330,800,000 lire, and drew on foreign countries for 326,500,000 lire. The banks accept on trust voluntary deposits of securities and documents, bullion, gold and silver money, jewels, and other valuables.

MANAGEMENT OF CIRCULATION AND COIN.

Italy was under a forced currency régime from May 1, 1866, to April 7, 1881, which, indeed, has never been really abandoned, as there has never been any redemption, in specie over the counters, of either the bank or the State note issues. This compulsory feature of the currency is cloaked under the disguise of legal tender, but it operates to-day as actively as ever.

The Act of August 10, 1893, intended as a preventive of frauds like those perpetrated by the Roman Bank, subjected the circulation of the banks to most stringent regulations. The note issues cannot exceed thrice the capital, and must be protected by a metallic reserve of forty per cent. whereof three-fourths must be in gold.

This latter proviso runs counter to the spirit of the Latin Monetary Union, which was established to secure an equal treatment for gold and silver in the contracting States. Moreover, it is difficult of enforcement; and, at various times, the banks have been obliged to refuse deposits of silver five-franc pieces and fractional coins—which, however, have legal circulation in France—and to accept them only in payment. Like other nations of the Latin Union, Italy has sent into France large amounts of silver of her own coinage, and has felt the embarrassment of the rise in exchange only after the exhaustion of her silver supply. But if the Latin Union was able to delay the rise in exchange, it has equally created difficulties for Italy, in the matter of her fractional coinage, by preventing her from minting according to her needs, and by depriving her of profits that she would have realized by purchasing silver at the market price, and putting it in circulation for double value. At present, by virtue of the decree of February 24, 1894, the banks stand in peril of having but a very scant coin stock, since the Treasury (as before related) has power to lay hands on 200,000,000 of their gold; in the event of which their notes would be secured not by metal but by State scrip.

The Government has, rather fictitiously, redeemed certain loans made to it by the banks, and rid itself of interest obligations on that account. It may, in view of the circumstances, be questioned, whether the bank paper offers any advantages over a system of State scrip, and whether it would not be simpler and more logical for the State to issue the bulk of the paper currency, assuming the responsibility for the mistakes that may be committed, than to shield itself behind the banks, which can offer no resistance. We subjoin statistics relating to the currency issues of the banks.

On December 30, 1894, the coin stock of the banks of issue was:

composed of the following elements:

To this reserve must be added 22,500,000 lire of foreign securities payable in gold, which the Bank of Italy held. But as 200,000,000 lire of these stocks could be tied up by the Treasury, the ready gold stock is reduced to 183,100,000 lire. The circulation is, as we have stated, rigorously limited by law. It was natural that legislation should take the most elaborate precautions to avoid recurrence of the conditions that led to the destruction of the Roman Bank. However, there is great difficulty in undertaking to confine a circulation within arbitrary bounds; since in practice the bounds are not determined by the capital or by the metallic reserve, but by the needs of the public. At first, the Government was compelled to relax the restrictions, whereby it had intended to keep the circulation within control. This was made necessary by the circumstances of the savings-banks, threatened by unforeseen withdrawals. What is of most serious import in this connection is that the State has deemed it proper to decide in principle in favor of an issue of 600,000,000 lire of scrip with forced currency, whereof 200,000,000 lire are to become a substitute for the metallic reserve of the banks, and 400,000,000 lire are to be thrown into circulation—an arrangement which, if carried out, cannot fail to terribly confuse the credit of the banks with the credit of the State. The circulation of the issuing banks, from 1884 to 1893, compares as follows:

On December 31, 1894, the circulation of the three banks was as follows:

In Italy, as well as in the majority of European countries, the 100 and 1000 lire notes (or their equivalents) are in preponderance.

CLEARINGS OF BANK NOTES.

In our historical account of the Italian banks, we have shown how the clearances of the notes of the different banks of issue were effected. The decree of February 27, 1894, modified the former mode of procedure. The clearances of the bank notes and the apodissary notes now take place on the 10th, 20th, and last day of each month. Each office establishes, on those dates, the amount of its holdings of the paper of the other banks, and notifies their representatives accordingly. The notes and other values are exchanged between the offices and correspondents of the different banks. Balance statements are forwarded to the central establishments, and carried on interest-bearing account at a rate which cannot exceed three-fifths of the discount rate. The current accounts are settled on June 30th and December 31st. The balances are paid part in cash or Government scrip and part in commercial paper at fifteen days’ maturity, taken out of the paper held by the debtor banks; or else in Italian consols on the basis of the average quotation of five days following the settlement.

CRÉDIT FONCIER OPERATIONS OF THE BANKS.

The Italian banks did a land loan business up to the enactment of the law of August 10, 1893. An act of December 21, 1884, authorized the Government to grant, by royal decree, to companies or institutions having a paid-in capital of at least 10,000,000 lire the privilege of doing a land loan business. Such companies or institutions had the right to issue, corresponding to loans made, mortgage bonds equal to ten times the capital paid in. The National Bank of the Kingdom laid claim to the benefits of the law, instancing the precedents of the Bank of Austro-Hungary, the Bank of Greece, the Scandinavian banks, and the Banks of Naples and of Sicily, which latter were empowered by the Act of June 14, 1866, confirmed by the Act of December 21, 1884, to carry on transactions in land loans. These transactions were intended to grant loans, repayable gradually, on the security of first mortgages on buildings up to half their value; to acquire by transfer or subrogation mortgages or liens under the same conditions, and to transform them into loans redeemable in installments; to make advances on current account, secured by mortgages on the above-stated terms, and to issue mortgage bonds for an amount corresponding to the sums loaned. The interest of the bonds, or mortgage certificates, was fixed at 4, 4½, or 5 per cent. The direct loans made were in bonds, and the loans for current account were in specie. The redeemable loans could not run for less than ten years or longer than for fifty years. To conduct these crédit foncier operations the National Bank established a special section on the plan of the Bank of Austro-Hungary and assigned to this division a capital of 25,000,000 lire. The Banks of Naples and of Sicily made direct mortgage loans.

No statistics of mortgage loans in force have been issued by the Banks of Naples and Sicily, and the aggregate amounts (180,900,000 and 29,000,000 lire, respectively, on December 31, 1892) were made known only by means of the inspection of 1893. We give below the condition, on December 31st, of the mortgage bonds issued as counterpart of the mortgage loans, for the National Bank and the Bank of Naples. The Bank of Sicily affords no information.

The Act of August 10, 1893, explicitly forbade the banks of issue to continue their mortgage loan dealings, and very wisely; for it always is dangerous to give an establishment whose life depends on the ready availability of its resources temptation to tie them up in long obligations.

COMPULSORY LIQUIDATIONS.

The Act of August 10, 1893, besides prohibiting further mortgage loans by the banks, decreed that the unauthorized real-estate transactions and investments should be liquidated within ten years. In the case of the Bank of Italy, the period was extended to fifteen years. The investigation of 1893 showed the investments to have been as follows:

This statement shows the amount of obligations to be realized upon by the banks; and to it must be added the 60,000,000 of fraudulent paper issued by the Roman Bank. It is certain that these figures represent important assets, and that the banks will recover a considerable share of the sums tied up in these items; but it is nevertheless a heavy load they have to carry, which must hamper them greatly. According to the balance-sheet of October 20, 1895, the settlements on immobile accounts still to be made were:

It is difficult to foresee how the banks may come out of this embarrassing situation and what losses they may finally have to suffer. Their capital appears to be seriously compromised.

RELATIONS BETWEEN THE BANKS AND THE STATE.

The Italian banks are under very exacting legal supervision. The State subjects them to both ordinary and extraordinary inspection. By a decree of October 1, 1859, approving the by-laws of the National Bank, that institution was required to put at the disposal of the State 18,000,000 lire, of which 6,000,000 was payable on demand and the remainder after a month. Interest on advances was fixed at three per cent. Upon the increase of the Bank’s capital to 60,000,000 lire, on June 29, 1865, the decree sanctioning the increase directed that the Bank should be prepared to advance to the State the difference between the 18,000,000 lire and two-fifths of the value of the shares issued. In a preceding chapter, it has been related how the National Bank granted a loan of 250,000,000 lire to the State in 1866, when the forced currency was established, and how that loan was raised to 300,000,000 by the agreement of March 4, 1872. It was distributed among the six banks of issue by the formation of the syndicate of 1874. At present the State reserves the right to claim from the three banks advances defined as statutory, which may amount to 125,000,000 lire, at a maximum interest rate of three per cent. per annum. The Bank of Italy must furnish an aggregate of 90,000,000 lire, the Bank of Naples 28,000,000 lire, and the Bank of Sicily 7,000,000. On December 31, 1894, the indebtedness of the State to the banks on account of statutory loans amounted to—

The banks act for the account of the State in the matter of provincial collections. They amass the funds of the tax receivers, issuing receipts to them and to the tax-payers. The local directors or sub-directors represent the banks in this service. The bank representatives cannot permit delays in the payment of dues and taxes. They are required to superintend the bookkeeping. They must proceed peremptorily against receivers in arrear. If a demand for funds remains uncomplied with, the securities of the derelict receiver must be sold within five days after the notification; and if the amount raised does not suffice to cover his debt, the director of the bank must employ against him all the resources provided by the law. The non-compliance with the bank’s demand must be communicated to the prefect, who issues an order of execution, the only formality that is necessary for the bank to observe. The banks receive for the collection service remuneration fixed by the Minister of the Treasury. In 1894, the following amounts of tax funds were handled by the banks:

The Bank of Italy has had charge of the State’s Treasury service since February 1, 1895. In all the provinces, it receives the payments for account of the State and its departments, and makes the payments to its creditors.

This service is gratuitous. As a guaranty for its faithfulness, the Bank has deposited a security of 50,000,000 lire in Government bonds, and bonds guaranteed by the Government, which is to be increased to 90,000,000 lire in six years. The State agrees, except in extraordinary cases, to leave in the Bank a permanent balance of 30,000,000 lire. When the balance goes above 40,000,000 lire, the Bank pays interest on the excess at 1½ per cent. If it goes below 10,000,000 lire, the State pays interest on the shortage at the same rate, and the Treasury must furnish the Bank, on the 10th, 20th, or last day of the month, a sum sufficient to make up the 30,000,000 lire. The Bank must hold for the disposal of the Treasury the gold and silver received for the Treasury’s account. No statistics relating to the Treasury service have yet been published. Finally, the banks pay the coupons of the Italian Government debt.

The taxes levied on the banks are very heavy. We give them in detail.

ANNUAL STATEMENTS.

Annually, the Italian banks publish the statements of their operations, going conscientiously into detail, and with accompanying tables that in many cases might well serve as statistical models to other banks. Also, a condensed balance-sheet is published every ten days in the “Gazzetta Ufficial del Regno.” The table on page 192 is a specimen of these ten-day reports.

The explanations we have given of the transactions of the bank facilitate an understanding of the foregoing balance-sheet. Nevertheless, a few additional remarks may be useful. The first item giving the maximum circulation as regulated by the law of August 10, 1893, is simply a matter of record.

Reserve and cash.—The reserve embodies the lawful gold coins except those which are tied up for account of the Treasury; the gold bullion and the gold coins which are not legal tender, always excepting the amounts tied up for account of the Treasury; the State scrip, which represents the gold tied up for the Treasury, commercial paper on foreign countries, payable in gold; five-franc pieces and fractional coin. The cash item includes the State scrip and cash certificates of the State issued against fractional coin, the bank notes and certificates of the other banks, and nickel and copper coin.

Portfolio (bills receivable).—Includes stock of bills of exchange and other commercial paper held by the bank, also coupons of securities which have been admitted to discount.

Advances.—Current loans on securities and merchandise.

Ordinary Treasury advance.—Drafts by the Treasury upon the sums which the banks must hold at its disposal.

Securities.—This item includes the securities owned by the bank; (a) for their reserve fund; (b) for the extraordinary reserve for which the law of August 10, 1893, provides; (c) for the reserve to provide against the final

losses of the Bank of Italy in the liquidation of the Roman Bank and for the losses which all banks will have to incur on the settlement of their tied-up investments; (d) the pension fund for the employees of the bank.

Credits.—Items of regular account current.

Shareholders.—Sums due by the shareholders on their shares.

Immobilizations.—This item comprises all sums which must either be converted into current funds, or paid off according to the terms of the law of August 10, 1893.

Profit and loss for the year.—The law of August 10, 1893, prescribes that doubtful accounts of each six months shall be carried on profit and loss account; they figure there until December 31st of the current year, when they are balanced out of the profits of the year.

Office buildings.—The houses belonging to the banks, and used for their own accommodation.

Miscellaneous accounts.—Various items and the liquidation account of the Roman Bank.

State service—Amounts owed by the State for transfers of funds.

General expenses of the current year.—The two following items represent the current account of the crédit foncier service and open deposits. The banks of issue cannot any longer make mortgage loans, but they have not been in a position to draw out their funds immediately, and therefore this item is carried as a running account on the debit and credit side. The open deposits are carried only as a memorandum on the balance-sheet; they appear for the same figure both in the assets and liabilities.

Among the liabilities we see:

Capital and reserve fund.—This item calls for no comment; the capital of the Bank of Italy has been supplied by shareholders and is their property, while the so-called capital of the Banks of Naples and of Sicily is the product of gifts, alms, and the accumulated profits, and legally belongs to nobody, truly a unique situation in the world of banking.

Circulation.—This item has four subdivisions; circulation for commercial account means the bank notes issued to satisfy discounts, advances on securities, etc., and their amount must not exceed 800 millions. The supplementary circulation authorized by royal decree of January 23, 1894, which became law on July 22, 1894, comes under the same head. The next item comprises the paper money issued for advances to the Treasury, which is exempt from circulation tax by virtue of the law of August 10, 1893. The entirely covered circulation is the issue which the banks are authorized to put out above the legal limitation, on condition that the issue be entirely represented by hard money or gold bullion on hand. The law of August 10, 1893, fixes the relation of the capital and metallic reserve to the circulation, and it taxes the bank notes above the limit at the double of the rate of discount, but as the circulation may surpass one of the two limits, or both, a distinction is made.

Accounts current and Accounts payable at sight.—This item groups the drafts and cheques to order, the “apodissary” documents, and the current accounts at interest and without interest, payable on demand.

Accounts current and Accounts payable on term.—Current accounts at interest and savings accounts payable after notice of withdrawal to the banks.

Miscellaneous accounts.—Minor accounts, containing dividends due, residue of profits of former business years, etc.

Divers services for State account.—This is the current account and other credit accounts of the Treasury; it will be remembered that this account must not fall permanently below 30,000,000 lire.

Fund set aside according to Article 2 of the agreement of October 30, 1894, is the counterpart of the item of securities figuring in the assets, and which provides for losses to arise in the liquidations.

Profits of the current year.—This item shows the profits since the beginning of the half-year up to the date of the balance-sheet.

Finally, we have the two accounts of the mortgage service and deposits, which we commented upon in our allusions to the assets.

CONCLUSION.

The Italian banks of issue have reorganized under the most discouraging circumstances. They have to contend with general distrust. Italy must certainly calculate upon having to encounter most difficult obstacles. She has abused the facilities of the credit establishments to the point of extreme danger, and undoubtedly she would have found it of the greatest advantage to have established a new bank, independent of the State, yet under its strict supervision; instead of leaving the right of issue in the hands of suspected establishments, which bear the brunt of faults of which they are perhaps not entirely guilty, but which they had not the courage to avoid. The very groundwork of the banks shows often a strange lack of understanding of the problems to be treated. The restrictions imposed upon the circulation and the extravagant taxes with which it is burdened weaken the banks and thwart the beneficial effect which they exercise in other countries. The legal-tender quality of the paper money is a mere euphemism, as Italy is under a forced currency rule, which means that the notes are a non-convertible paper money like the scrip of Greece or of the Argentine Republic.

The State has not as yet made use of its prerogative to levy upon the gold of the banks and to give them its own scrip therefor. This State scrip would allow the banks to issue bank notes of their own to triple the sum of the State’s paper; but this license is a very grave one. It is inflation pure and simple; an amplification of paper money issued by banks which, at this day, have neither capital nor reserves left, at least not in readiness to be used or to be realized upon. The banks struggle as best they can against the situation which faces them; but they are overwhelmed by taxes and entangled in the limitations of a too narrow circulation; they have allowed their own credit to be merged with the Government’s credit; and, above all, enfeebled and demoralized by their past, they cannot exercise that regulatory action upon the coin and scrip circulation which is the fundamental mission of banks of issue.

CHAPTER III.

ITALIAN CO-OPERATIVE BANKS.

EMBODIMENT OF THE POPULAR IDEAL OF BANKING.

THOUGH Italy has not solved happily the problem of banks of issue, she has at least comprehended the ideal of popular organization for banking purposes. In this, she is largely indebted to the energetic and persevering initiative of Sig. Luigi Luzzatti. Sig. Ettore Levi, in his “Manual of Popular Banks,” traces the history of popular credit in Italy as follows: “Popular credit and usury are two terms which for a long time have marched side by side. Credit granted upon the sole guaranty of honesty and labor had seemed to be an impossibility. Credit for the artisan or the merchant on a small scale, however honest and intelligent he might be, existed only in the form of pawn business at the Mont de Piété. Some attempts at personal credit were made in former days.” Sig. Luzzatti cites some remarkable attempts at popular credit made by mediæval guilds—above all, by the English guilds; but their rates of interest were so usurious that the loan was more of a drag than an advantage. The “cassiére” of Venice are another form of co-operative credit; but they also smack more of usury than providence. To Germany really belongs the credit of having first established popular credit on scientific principles. Socialists always and everywhere preach ardently the theory of gratuitous credit; and the Parliament of Frankfort O. M., in 1848, had to take up this question which the workingmen, incited by the Socialists, agitated in numerous meetings. The dissolution of the Parliament interrupted the work of the commission appointed for the study of the question; but it did not stop the Socialistic clamor under the leadership of the famous Lassalle.

THE SCHULZE MOVEMENT.

Against the Socialistic hue and cry arose an antagonist in the person of a humble and obscure justice of the peace of Delitzsch, Herr Schulze; and he became the founder of popular credit. Excluding, from the start, the help from the State and private charity, which would have made the honest workman the recipient of alms, two solutions were left for Schulze’s choice; association of capitalists to make loans to small manufacturers and artisans, or association of the very parties who needed to borrow. Capitalistic association would have had a tendency to transform itself either into a charitable institution or fall into the groove of an ordinary bank. Schulze wanted to avoid both these possibilities. What he aimed at was that the workingman should be the instrument of his own elevation. Before obtaining credit the artisan had to show that he deserved it; and Schulze built his system on the assumption that in legal and peaceful alliance of all minor forces lay the potency of co-operation and the solution of the problem. By associating men who alone could have offered no guaranties of confidence, Schulze made up a fraternal union which would receive savings and easily obtain credit. The association itself is not dependent upon the results obtained for the participants; it gives loans to them upon the surety of a union of individuals—workers and honest men; and this moral guaranty is backed by a capital formed out of the savings of the parties associated. “The capital so created,” said Schulze, “is the only one to protect the artisan. It would be absolutely vain to grant him loans or give him the means of work, such as some reformers have in view; such gifts, like the inheritance left to a prodigal, would soon vanish. Above all, workingmen must be imbued with the sentiment of order, providence, and good administration; this alone can preserve and increase the acquired capital, be it loaned or given. The co-operative societies which have prospered are those that have made up their own capital by the heroic setting aside of part of their daily wages. Those to whom the Government made loans in 1848 have soon broken up.”

The initiative of Schulze has produced marvelous results; Lassalle’s ideas have fallen to the ground by the non-success of the Utopia of gratuitous credit. The popular banks have met with success and are continually extending. Loans under the patronage of the Government, of communities, or from public charity lack success and prove themselves vastly inferior to the popular banks of Schulze. The ideas of the illustrious German economist found in Sig. Luzzatti an indefatigable champion; and he justly deserves the title of founder of the popular banks of Italy.

The question of workingmen’s credit was agitated in Italy at the Congress of the Workingmen’s Societies held at Vercelli in 1858 and at the Congress of Novi in 1859. The Congress of Milan, in 1859, voted upon certain propositions of Boldrini, the advocate. He, while keeping gratuitous credit service out of the question, adopted on a large scale Lassalle’s ideas. Lassalle held that the workingman could not establish associations of credit by his savings and that the sole guaranty which he could give was his honesty. Boldrini’s plan, on the contrary, was to establish a bank with a capital of registered shares or shares to bearer; a bank with the power to make loans to workingmen for 100 lire and upwards. He sustained the principle that labor and probity were sufficient to obtain credit; that it was a cruel irony to ask borrowers for a savings fund which they could not obtain, that credit should be granted largely by the banks to all who were the step-children of fortune and whose only wealth was honesty. According to Boldrini, the German banks which exacted savings besides honesty were too timid and could not go to the core of the question by reaching those who possessed nothing and could not possess anything. Boldrini and some others began to put their ideas into practice by elaborating, in 1863, the regulations of the Labor Credit Society of Milan, and the municipality of that city appointed a Commission of Inquiry relating to the project. At that time, Sig. Luzzatti, a man of but 23 years, but who had already made a name for himself by an important book, “The Diffusion of Credit in Italy,” in which he explained and commented upon Schulze-Delitzsch’s doctrine, gave a series of lectures in contradiction of Boldrini’s ideas. He maintained co-operation and mutuality and pleaded for popular banks on the German plan. Sig. Luzzatti kept up a vigorous campaign, and in May, 1865, at the Turin Congress, he could not only declare victory in the disputed territory, but he had also achieved success in Lombardy by the aid of some friends. The Lodi Bank was in operation; the Milan Bank began transactions with the support of the Associazione Generále degli Operai (General Workingmen’s Association) after the Municipal Council of Milan had declared that Boldrini’s plan was practically not feasible. The good work of Sig. Luzzatti has been energetically carried on. Since 1865, the popular banks multiplied in Lombardy, Venetia, the Romagna, and Piedmont, and to-day these institutions are numerous and flourishing.

PROGRESS OF THE POPULAR BANKS.

In the first years of their existence the popular banks had to fight a stubborn battle against an institution which was far removed from their scope. The Banco del Popolo of Florence had been established in 1865 with the intention to give credit to the classes which were less favored by fortune. The Banco del Popolo wanted to cover the whole of Italy, by means of numerous branches and agencies, and, to use the words of Alvisi, its founder, “the association should not be divided into workingmen and employers; for all workers were part and parcel of the people, and the bank should open the fountains of credit to all workers, from workingman to banker.” With this purpose in view, the Banco del Popolo, organized on the same plan as all other credit associations, took in a variety of transactions, such as deposits, savings, loans, and life insurance. Thus it had nothing in common with the German and Italian popular banks, which are simply associations by which artisans, farmers, small manufacturers, and all who have no access to the great banking establishments join forces and invest their savings for the foundation of a local and autonomous credit institution which provides for their own needs. The Banco del Popolo bore the germs of ruin in its bosom, as soon as it started to develop its programme, which was badly adapted to popular credit; Sig. Luzzatti had foreseen that the development and downfall of this bank would be a complete and very grave disaster. By its untimely rivalry it had delayed the spread of the popular banks.

ORGANIZATION OF POPULAR BANKS.

The popular banks are independent establishments, each having its own by-laws, which are adapted to local circumstances, although a common spirit pervades all of them. Sig. Ettore Levi has suggested the following model, to be modified to meet special cases.

The following statement shows the progress of the popular banks from 1876 to 1893:

The associations are worked: (a) By meetings of the members; (b) by the Council of Administration; (c) by the director and the employees; (d) by the Auditing Committee; (e) by the Discount Committee; (f) by the Committee of Experts (probiviri).

The members hold ordinary and extraordinary meetings, which, if legally constituted, represent the members; the resolutions of these meetings are binding for all business provided for in the by-laws. The meetings approve the annual balance, and elect the officers. The Council of Administration consists of a president, vice-president, and a certain number of councilors, one-third of whom alternate each year. The members of the Council are unsalaried, and the president can obtain no loans from the society. The Council votes the expenses of the administration, establishes the formal balances and the profit and loss account, and fixes the rate of interest for assets and liabilities. It attends to all details of the general management. For special business it can delegate its powers to one or several members of the Council, or to the bank’s employees. The Council appoints a director, who has charge of the general administration under the supervision of the Council. There are five comptrollers—three regulars and two deputies; their services are unsalaried. They see that the by-laws, regulations, and resolutions are carried out.

The Discount Committee consists of the Council of Administration and associate members, whom the Assembly appoints; they alternate in their functions. While they are on duty, they can neither obtain discounts nor vote upon business in which they are personally interested. No loan or discount can be granted without the approval of the Discount Committee. The Expert Committee consists of three members whom the General Assembly appoints. They act as umpires in all differences which may arise in the association, and in all cases where friendly conciliation is required.

TRANSACTIONS OF THE POPULAR BANKS.

The popular credit associations discount commercial paper, warehouse warrants, workingmen’s liens, invoices, public works vouchers, Treasury checks, and pay vouchers of provinces and cities. The discount is deducted in advance; it is charged for five days at least on home paper, and ten days for out-of-town paper. The associations give loans on honor, without collateral. These loans are made to persons of either sex who have no resources whatever, but whose reputation for honesty and thrift is good. Such parties must have a trade or shop; they are presumed to be able to repay the loan, and, as a rule, the condition is made that they must be able to write. Such loans must not be above 100 lire, and are made for sixty weeks as the utmost limit. The repayments are made in weekly installments, although in some cases monthly payments may be allowed by the administration, which fixes the date at which repayment must begin. The loans are granted upon the recommendation of two persons who are acquainted with the borrower, and who vouch for his honesty and ability to repay the loan. Loans on honor originate an account current. The amount of the loan is carried on the debit, and the payments on the credit side.

Such is the method of the Popular Bank of Bologna; the rules of the other banks vary only in minor points from these.

The banks operate also farm loans; i. e., loans on collateral of products of the soil (grain, fodder, etc.), which are stored in its own warehouses, or in places which it designates. The borrower must pay the storage charges for keep and insurance, etc., besides the interest on the loan. Loans on standing crops are made by means of bills of exchange, but the borrower must prove that he is insured against hail and fire. In no case can these loans run for more than one year. The banks also make loans on Government bonds, or securities guaranteed by the State, also on mortgage bonds up to four-fifths of their value. These loans are made for six months; they can be renewed. If the market value of the collateral should fall ten per cent., the borrower must either repay a part of the advance or increase the collateral. The loans may also lead to the opening of current accounts, and, in such case, the borrowers draw against the credit opened in their favor by means of cheques. Open loan credits are allowed to stand for two years.

The following statistics will illustrate the status and operations of this class of banks.

The loans and advances made in 1893 amounted to 432,723,905 lire; discounts to 559,724,495 lire. The loans were of the following categories:

Discounts, farm loans, and open advance accounts are granted only to members of the associations; commercial paper offered for discount must bear at least two signatures of persons well known to be solvent. The notes must not have above six months to run. In the case of warehouse warrants, the merchandise acts in lieu of the second signature.

The banks receive deposits of cash on open account. The depositor can draw upon his credit by cheques; they give out savings-bank books in the names of individuals, and to bearer, and issue interest-bearing bonds. They can make payments and receive moneys free of charge for their members, and charge a commission to non-members; they can issue drafts on the various places of the kingdom and undertake the collection of commercial paper. In certain cases, they even undertake the collection of municipal taxes.

CURRENT ACCOUNTS, SAVINGS DEPOSITS, AND INTEREST-BEARING BONDS ON DECEMBER 31ST.

On December 31, 1894, the deposits in force were distributed as follows:

The banks receive for safe-keeping securities, jewelry, and documents, for which they are not responsible in cases of force majeure. They attend to collection of interest and dividends on securities which are payable in the kingdom, and undertake to have matured securities redeemed. On December 31, 1893, the free deposits amounted to 112,235,011 lire. The net profits are distributed as follows: 70 per cent. to the associates pro rata of the shares which they own; 20 per cent. into the reserve fund, and 10 per cent. left at the disposal of the Council of Administration for gratuities to employees and for charitable purposes. The reserve fund is made up by the assessment on the profits which we just mentioned, further from initiation fees, from the payments of new shareholders in order to acquire a share in the reserve, and from extraordinary profits.

When the reserve reaches one-half of the stock capital, assessments on the profits cease; if it falls below half of the capital, assessments are made anew until the proposed level is again attained.

The popular banks carry a relatively large amount of public bonds and industrial securities, as shown by the following figures: In 1870, 3,474,000; 1875, 29,783,000; 1880, 50,323,000; 1885, 87,514,000; 1890, 115,997,000; 1894, 136,002,000.

The balance-sheet of the popular banks for December 31, 1893, has been summarized in the statistics published by the Ministry of Agriculture, Industry, and Commerce, and we give it below:

This statement may be condensed into a few lines.

The preceding statistics prove that the popular banks’ service is rather costly. Being obliged to pay a high rate of interest on their current accounts as well as on savings deposits, and also being subject to very heavy taxes, they must necessarily charge borrowers high rates of interest. Nevertheless, they have been a powerful agency in the extermination of usury, at least in Upper Italy. The term “usury” is not applied to the loaning at heavy interest, but to the system in which the debtor cannot free himself by any means; when by a skillful game of renewals and costs the borrower is held for long years in the grip of his creditor.

The popular banks are not charitable institutions; only in their loans on honor do they appear to approach that purpose. Yet it must be considered that even these loans without collateral are made to workingmen who, although poor, can obtain the loan only after serious investigation. Seldom are professional charity-seekers or dishonest parties able to obtain money through imposition; and it may safely be said that these loans may be regarded in the light of a regular business form of personal credit. In brief, they are loans against character.

We have explained how the banks grant credit on farm interests. There they meet with serious difficulties; not so much in their current loans, but in advances for soil improvements, for purchases of agricultural implements, seeds and fertilizers, etc. According to the statistics of 1893, this form of operations is handled by fourteen banks and their amount has been insignificant.

Although the agricultural loans generally enjoy a favored rate of interest, yet the conditions for obtaining capital were hard in 1893; the rate was seven and one-half per cent. in one bank; one only lent at from three to five per cent.; in the others the rate was four and one-half, five, and six per cent. The drawback on agricultural loans lies in the length of the term which must be allowed for repayment and in the fact that the banks can only convert their demand loans into long-term investments after previous notice of a few days. This would throw them into the error which cost the Australian banks so dearly. They can only bring their capital and reserves into play, or employ the procedure at the banks of the province of Treviso; i. e., issue special bonds at fixed maturity, in order to raise the means necessary for long-term loans. Long-term bonds, though, offer but slight temptation to capitalists unless a remunerative interest is offered; and naturally the borrower must pay this interest, and somewhat more, for running business expense, for insurance of risk, and for the bank’s profit. The perpetual cry is that, for the so inappropriately styled agricultural credit, capital cannot be found at the low rates charged merchants and manufacturers, and that the cultivation of the soil becomes less lucrative from year to year. These difficulties have been overcome rather satisfactorily by the Scotch banks; and the Italian popular banks have made meritorious efforts to reach a solution of the problem; but complete success has apparently not yet been attained.

COLLAPSE OF THE ITALIAN CRÉDIT MOBILIER.

In our treatment of banks of issue, we spoke of the rescue of the banks which had to be undertaken by the National Bank of the Kingdom of Italy, and which caused so much embarrassment. At the moment when the new Bank Act was to take effect, two establishments of the first rank suspended payments; namely, the Società Generale di Credito Mobiliare Italiano and the Banca Generale. This was a considerable event, which affected the whole of Italy. It is therefore proper to consider in fuller detail its circumstances. The facts that follow are based upon an excellent paper in the “Giornale degli Economisti,” by Professor Maffeo Pantaleoni, who had the direction of the Credito Mobiliare liquidation.

The Credito Mobiliare, established in 1863, had a capital of 75,000,000 lire subscribed, of which 60,000,000 lire had been paid in. It conducted ten branches, or agencies, had absorbed seven banks, and was more intimately identified than any other credit institution with the political and financial interests of Italy. It was, indeed, at the forefront of banks, and ranked with the National Bank. The Banca Generale was a house of more modest pretensions, with a capital of 30,000,000 lire, wholly paid in. It had three branches, and four other banks had been consolidated with it. Its reputation in Italy and abroad was of a high order. Both the Credito Mobiliare and the Banca Generale were organized with a view to creating and fostering private industrial and commercial enterprises, and to placing securities on the market. They were originally neither deposit nor discount banks. The Banca Generale had launched the branch railways, the San Giovanni iron-works, the metallic construction enterprise of Naples, the Builders’ Aid Society, the Venetian Company, the Building Society for the streets of Giulia and Picca in Genoa, and the Agricultural Credit Institution of Latium. Jointly with the Credito Mobiliare, it was interested in the sanitary improvement enterprise in Naples and the steel-works of Terni, and it bore the same relation to the Mediterranean railway system as the Credito Mobiliare sustained to the Adriatic. The Credito Mobiliare, besides its connection with the sanitary improvements in Naples, the Terni steel-works, the Builders’ Aid Society, and the Adriatic railways, had under its special charge the Company for the Purchase and Sale of Real Estate, the Piambono iron-works, the Cirio Agricultural Export Company, the storage warehouses of Bari and Pouilles, several branch railways, etc.

According to its by-laws, the objects of the Credito Mobiliare were: (1) To subscribe to Government, provincial, and municipal loans; (2) to subscribe to foreign government loans; (3) to buy and sell, for cash and on time, public securities, shares and bonds of all kinds issued by industrial and credit concerns; margin operations, however, were prohibited; (4) to promote all kinds of enterprises, such as railways, roads, canals, factories, mines, docks, illumination, development of the soil, improvements, irrigation, draining, and, in general, everything appertaining to the public utility; (5) to undertake the consolidation and transformation into stock companies of commercial concerns, and to issue their shares and bonds; (6) to bid for the privileges of collecting all kinds of public revenues and undertaking public works, and to carry out the resulting contracts and sublet them subject to the approval of the Government; (7) to issue, under authority from the Government, bonds for an amount equal to the values on hand representative of the above-enumerated transactions; (8) to sell, carry on time, and hold in trust public obligations, shares, and bonds, and to make advances on such securities; (9) To sell and buy merchandise and provisions for its own account and for third parties, to make advances on merchandise. provisions, crops, real estate, buildings, and other objects of value, and to open credits on current account; (10) to undertake for other companies and individuals payments, collections, and all other transactions; (11) to receive metallic deposits and securities, and to open current accounts in this connection; (12) to discount bills of exchange or drafts to order provided with two signatures at six months’ maturity or longer.

Although the regulations authorized the Credito Mobiliare to take deposits, the management showed little inclination for such business, but discreetly preferred to operate in a sort of trust capacity, issuing bonds secured by collateral of good quality; the former to mature at the same time as the latter. Thus the character of a deposit bank, whose resources might disappear with the smallest panic, was measurably avoided. This conservative policy enabled the Credito Mobiliare to pass safely through the crisis of 1866, during which it had to pay out 16,000,000 lire on 23,000,000 lire of deposits. But, when the management changed, the bank sought actively to recover its deposits. This was not due to any deterioration of the management, but to a conviction that it was needful to convert the institution into an ordinary bank. Unfortunately, the Credito Mobiliare was not successful in employing its call deposits; and soon after the beginning of 1892 it found itself in a perilous position. It had to choose between two courses—first, to go into liquidation, or second, to continue the business with the deposits, the resources that could be raised abroad, and its great credit, until it could recover out of it profits the capital that had been impaired, mainly by the losses in the sanitary improvements of Naples. It preferred the latter way, although it was the more hazardous. As steps toward relief from its troubles, the Credito Mobiliare increased its capital by 25,000,000 lire, with 20,000,000 lire to be paid in (which yielded about 13,000,000 lire), made new appeals for deposits, had contracts awarded to it for collecting the taxes in a great number of localities, and added to its agencies. Tax collection, as managed in Italy, is very risky business for a bank, since it involves hypothecation to the Government of all the collector’s property and the advancing of past due taxes. The latter requirement compels the collecting establishment to keep a portion of its resources inactive, and no use can be made of the ready funds derived from the services, lest they may not be at hand when they have to be paid into the Treasury. These dangers did not cause the Credito Mobiliare to pause; for it found an opportunity to create, by means of its tax-gathering department, a clientage of depositors for itself, whereof it stood in need. But it did not long enjoy the benefits of the new deposits clientele. When the people came to know of the scandals of the banks of issue they were panic-stricken, and hastened to withdraw their deposits from the private banks. After three months of endeavor to outlast the “run,” the Credit Mobiliare, on November 29, 1893, stopped its payments. The banks of issue did not even attempt to avert the calamity, and this establishment, which had done so much honor to Italian finance, was permanently ruined. Italy has seldom sustained a harder blow, and she is still far from recovery. We copy from Professor Maffeo Pantaleoni’s paper the most interesting figures of the balance-sheet of the Credito Mobiliare.

CHAPTER IV.

THE BANKERS OF FLORENCE.

ORIGIN OF FLORENTINE BANKING.

COMMANDATORE PERUZZI, descendant of an illustrious family of Florentine bankers, in an excellent book (unfortunately become exceedingly scarce), from which we shall borrow frequently in the following pages, alludes to the period of the thirteenth and fourteenth centuries when Florence was under a democratic form of government as the “Guelph century.” That era extended from 1266 to 1328. During those sixty-three years, the Tuscan language and literature were brought to their acme by Dante, Petrarch, and Boccaccio, and painting was advanced to high development by Cimabue and Giotto. The activities of the Republic were not confined to literature and the fine arts. This was equally the Golden Age of commerce and banking. The spinning and weaving of wool and silk, ancient Tuscan industries, engaged at that time two hundred shops, which gave work to 30,000 people. In the economy of the Republic, the trades had a very significant place. They were divided into seven “major trades,” allied to the liberal arts, and fourteen minor trades, or new professions and avocations. Each trade had its own chiefs, administration, banner, and tribunal. The trade tribunals sat in judgment with entire independence of one another. Among the major trades were those of money-changer and banker. The Florentine money-changers seem to have practised their calling at first in Rome; which, as a place of pilgrimage, received moneys of all the countries of the world. The changers bought these moneys and dealt in them. They became, later, bankers of the Holy See, had correspondents in various nations, and acquired large fortunes by gathering the Peter’s pence and transmitting them to their destination. With them originated the genuine exchange business; for it is easy to comprehend what facilities were enjoyed by the Pope’s bankers everywhere, and what opportunities they accordingly had for profitable traffic.

FLORENTINE BANKERS IN ENGLAND.

The agents of the Florentine bankers appeared in England during the reign of John (1199), where they were intrusted with the collection of money for the Pope. As they transacted their business with great probity, they were regarded with much consideration by all classes, and, to their misfortune, they attracted kingly favor. Henry II. had recourse to them when the English barons refused him the funds necessary for equipping an army to assert the rights of his son Edward to the crown of Sicily and Apulia. But the expedition was not dispatched, and it was not until 1266 that the enterprise was taken up again, under the auspices of the French and the house of Anjou. It does not appear that the Italian bankers charged interest for this loan to the King of England. They were to be recompensed out of the seignorage of the Royal Mint, and by recommendations of them to other sovereigns. In 1306, Edward I. gave to the Company Frescobaldi £10,000 sterling as compensation for the delay in repaying a sum borrowed long before, and appointed Amerigo Frescobaldi English Commissioner at Bordeaux. Edward II., in 1315, requested the favor of the Pope for two brothers of Amerigo Frescobaldi in an important trial that they had pending before the Roman tribunal. Everywhere in the history of those times are found traces of the business done by the Florentine bankers with the English monarchs. By the end of the twelfth century, sixty-nine banking houses of Florence were operating in England. These concerns did not limit their dealings to money matters, but bought for the accounts of Florence mercantile firms English wool to supply the Italian industries.

Edward I. was succeeded in 1307 by his son Edward II. The new king was much distressed by the claims of his father’s creditors and by the obligations that he himself had contracted—the whole amounting to £118,000 sterling. The most of this large indebtedness was paid back to the Florentine bankers—the Frescobaldis, Bardis, Ballandis, and others. The English people viewed with great exasperation the delivery of so much money into the hands of foreigners, and in consequence the bankers ran serious risks. Time failed to appease the popular hatred, and several years later the house of Bardi in London was pillaged and burned by the mob. This violent spirit excited decided distrust and fear among the bankers, who showed themselves far less willing to loan to Edward II. than they had been to his predecessor. Gradually the number of Italian houses doing business in England was reduced, until under Edward III. only the Bardis and the Peruzzis remained to represent the sixty-nine institutions of the reign of Edward I.

FLORENTINE BANKERS IN FRANCE.

France also sustained close and friendly connections with the Florentine Republic. About the end of the eleventh century, the merchants of Florence began to participate in the fairs of the Champagne, buying raw wool and selling stuffs. Settlements were made through the bankers, who were alternately well treated and persecuted by the French kings. In 1277, Philip III., under pretext of obeying the condemnation of usury promulgated by Pope Gregory X. at the Council of Lyons, threatened to expel the Italian lenders and merchants from his dominions, but the majority of them obtained permission to remain in consideration of the payment of 120,000 gold florins. In 1291, Philip the Handsome caused all the Italian merchants to be arrested, giving as his reason that he wished to extirpate usury from his kingdom. Again a compounding arrangement restored to them the liberty of their profession. In 1337, Philip IV., requiring means to maintain the war against Edward III. of England, resorted to the same tactics, and would not release the prisoners until they had agreed to pay a huge ransom. Subsequently, in 1334, this same king granted to the famous Duke of Athens, who had been exiled from Florence, the right to visit reprisals upon the Florentines resident in France, which were to be continued until they should pay him what he claimed from the Republic. All the representations and protests made by Florence were without avail, and the Tuscans, having no right of citizenship in France, left the country, losing all they owned.

THE BANKERS OF FLORENCE.

The broad scope of relations with foreign countries naturally called into being numerous banks in Florence. They were directed by skillful and experienced men, whose ability and wealth, as a matter of course, gave them important influence upon public affairs. The bankers not only excelled in the art of providing for the needs of the Treasury, but understood how to negotiate alliances, and became, in emergencies, excellent generals. With the growing activity of commerce and industry, the revenues of Florence did not suffice for public needs, and, at the advice of the bankers, resort was had to loans. These were introduced in 1336 as a result of expensive wars, and were greatly enlarged after the terrible plague of 1348. The first loans were granted by the associated Peruzzis, Bardis, Scalis, and Acciajolis. To secure them, the Government designated certain merchants or members of the principal banking houses as collectors of the salt tax—a process that certainly minimized the risks incurred by the lenders under the previous system of forced loans. In 1348, all the old and new indebtedness of the Republic was consolidated into a general debt, with perpetual interest at five per cent. Here we have the earliest example of attempts at consolidation of the public debt. The investment served chiefly for the dowry of daughters. Careful parents bought income bonds and left them to capitalize at compound interest for fifteen years or more, so as to have resources of some magnitude when the children should be ready to marry.

After the downfall of the democratic government, Florence had to pay fifteen per cent. for money, and on condition that thrice the capital received should be paid back. The Republic, apparently, had not legislated on the rate of interest, but had held to the rules laid down by the Emperor Justinian, who fixed rates of four per cent. for persons of rank, eight per cent. for merchants, eleven per cent. for grain-dealers and sellers of provisions, and six per cent. for the people at large. The preaching friars were at pains to demonstrate that usury, so prevalent in all nations, was illicit gain, not sanctioned by the Church. They succeeded only too well, and interest, which before the tyranny of the Duke of Athens was at eight per cent., and toward 1340 had fallen to five per cent., rose in 1359 to twenty per cent. About 1495, Florence, as a means of coming to the relief of the less fortunate classes, opened a Mont de Piété, or establishment for loans on pledges, authorized by Papal decree. The Mont de Piété charged interest representing its general expenses, and sold the pledges in case of non-redemption. Operations were begun with the insignificant capital of 2891 crowns, which was augmented rapidly by charitable gifts and deposits. In 1530 it had reached 38,000 crowns. If the Mont de Piété did not stop usury, it rendered its effects less hurtful to the poor. The institution experienced numerous vicissitudes. Public authority intervened several times to regulate its capital—that is, to plunder it of a portion of its resources.

COMMERCIAL ASSOCIATIONS.

One of the most remarkable examples of Florentine genius, after the recovery of liberty, was the system of commercial associations; which, by uniting intellectual forces and by their activity, achieved grand results. They were originally recruited from the families and kin of merchants; but other citizens were not slow to perceive their advantages and join in them. The association spirit showed such progress that, according to Villani, 80 companies were in existence in 1338, and 108 some years later. The associated merchants earned vast wealth, and their prosperity enabled them to lay out money for expenses on an enormous scale to advance the national interests everywhere, and to establish relations with the most remote countries.

Signor Peruzzi has found in the archives of his family various association documents of the Peruzzi Company. The oldest bears the date of 1300. It provides for the creation of the banking house of “Filippo d’Amideo Peruzzi and Associates,” composed of Giotto, Tommaso, Arnoldo, Rinieri, and Filippo, paying in 45,000 florins; Filippo d’Amideo, who for his sons Guido, Amideo, and Peruzzo, paid in 26,000 florins; Ranco Raugi, 10,000 florins; Gherardo Barancelli, 13,000 florins; Catalino di Mangia degl’Infangati, 7000 florins; Gianni di Manetto Ponci, 5000 florins; Bencivenni Folchi, 4000 florins; Cione dei Bonaccorsi, 3000 florins; Gieri Lottieri Silimanni, 3000 florins; Giovanni Villani Stoldi, 2000 florins—altogether, 124,000 florins, or about 3,500,000 francs. Of this capital 1000 florins was set aside to be used in charity. The profits were to be distributed pro rata on the basis of investment, and each partner paying in funds to the company in addition to capital was entitled to interest at eight per cent. The company was to liquidate every two years, but after each liquidation was to be reconstituted. The records show that, in 1308, it was dissolved with a loss of 40,000 florins on loans made to the Courts of France, England, and Rome, and to the Order of St. John of Jerusalem. But upon reorganization better business was done, and from 1308 to 1310, forty per cent. profit was realized.

MANAGEMENT OF THE COMPANIES.

It is probable that one or several of the associates had authority to sign jointly for all and directed the affairs of the house. The two persons mentioned as directors of the Peruzzi bank are Filippo d’Amideo (who appears to have been the chief) and Tommaso d’Arnoldo, his nephew or cousin. The concern had sixteen branches—in London, Avignon, Rhodes, Cyprus, Tunis, and different cities of Italy, most of which were managed by associates or relatives of its heads. The intercommunication of the various establishments was maintained by factors, or couriers, who were constantly traveling from one to the other. These representatives were provided by the bank with funds and recommendations, and as proof of identity each wore a bronze medal displaying the company’s coat of arms.

Owing to this branch business, the bankers of Florence had very curious and most exhaustive compilations of information respecting the usages and conditions of foreign lands. A certain Balducci Pegoletti, in a “Merchants’ Manual,” details precise rules for exchanges, and indicates particular periods of expectable rise and fall in the money standard in foreign parts. Thus, he says, money is dear in Venice from May to September, because the galleys go to the Levant then; in Florence it is cheap from September to January, because the country people pay their land rents during that time. Similar data are given concerning weights and measures. For instance, a contaro of Cyprus equals 660 Florentine pounds, and the equivalent of a Florentine pound of silver at Cyprus is one marc four ounces and three sterlins.

The costs of merchandise transportation are carefully set forth. To transport wool bought in London cost twelve pence the bale; the cargo charge to Libourne, in France, was two sous sterling, and from Libourne to Montpellier, by wagon, about two pounds fifteen sous. At Montpellier the charge for hostelry and for forwarding to Aigues-Mortes was two sous one penny per bale, or four sous one penny per load. At Aigues-Mortes the consignment and shipping charges, including duty and gratuities, were one sou four pence per bale, or two sous eight pence per load. So it was calculated that the cost of sending a cargo of wool from London to Aigues-Mortes was nine gold florins.

The courier routes were marked out in most painstaking detail. The following is the itinerary for a journey to China: “First, from Tana to Azov and Gitracan (Astrakhan) by ox-cart takes twenty-five days. On the route are found many gendarmes, and it needs some money for them. From there, it requires ten or twelve days of wagon ride with horse teams to reach Sara, or Sarai (Saraïtchikowskaïa). From Sara to Saraconco, a town on the Jaik, or Ural, River, eight days by water. From there to Urgenzi, or Urguenz, twenty days by wagon drawn by camels. This town is on the Ghien River, or Oxus of the ancients. Thence to Oltrav, thirty-eight to forty days. From Oltrav to Armalecco (probably Tashkend), forty-five days. From Armalecco to Camexu, seventy days with asses. From there to the Kara Muren (Hoang-Ho), fifty days on horseback. Leaving the Kara Muren, the traders may go to Cassai, to exchange the silver money that they have brought for paper money. From Cassai to Cambalu, or Cambalecco, which is the capital of Catoy, thirty days.”

The instructions to travelers specify with minuteness the kinds and quantities of provisions that should be taken, the expenses that would have to be paid, the charges for hiring boats, horses, donkeys, and camels, the values of moneys, and the dangers of the routes. The manual reads like a modern travelers’ guide. Their exact knowledge of foreign countries gave the Italian merchants and bankers an indisputable superiority over those of other nations. Even at the present day, few houses are equipped to furnish their agents with such complete and exact information.

DOWNFALL OF THE FLORENTINE BANKERS.

The good fortune of the bankers of Florence came to an end by 1340. In 1330, Edward III. ascended the throne of England. He manifested a favorable disposition toward the foreign merchants. The two Italian houses of Bardi and Peruzzi, with branches in London, became bankers to Edward III., succeeding the Frescobaldis, who had performed the same offices for Edward II. They filled the royal coffers with generous hands, and although repayments did not take place with perfect regularity, the noble character of the English sovereign reassured the lenders against all anxiety.

England was then waging a war with France, which absorbed all the resources of the State, and left nothing for its creditors. King Edward, on May 6, 1339, issued an edict suspending all settlements of indebtedness, including that owing to his well-beloved Bardis and Peruzzis. It can readily be conceived what a terrible consequence this action had in a commercial city, and in a mercantile republic. The two companies stricken were the wealthiest of Florence, and were known as the mercantile pillars of Christendom. Villani states that the King of England owed them 900,000 florins, and that the King of Sicily was indebted to each in the amount of 100,000 florins. This money was worth a kingdom. The Peruzzi archives say that in 1339 Bonifazio di Tommaso Peruzzi went to London on the company’s business, but could obtain no satisfaction, and that he died (probably from grief) in October, 1340. The entire mercantile community of the city suffered from the disaster, and the decadence of the Republic began.

After the English naval victory of Ecluse the spirits of the Florentine bankers revived. They hoped that in the joy of triumph Edward III. would remember that he owed his successes to the financial assistance which had been given him. The King was willing to repay the loans, but Parliament resisted. The bankers attempted to struggle against ill fortune, but in the existing position of their affairs were unable to support commerce and industry on the former scale. Usury reappeared. The democratic government was naturally blamed by the populace for the public calamities, and, moreover, it had lost all energy. Accordingly, in 1342, Gauthier de Brienne, Duke of Athens, who had conducted himself well as lieutenant to the Duke of Calabria in 1326, was called to the head of the State. This was the immediate outcome of the commercial crisis, and it precipitated incalculable ills. All classes had reposed great expectations in the new government. The aristocracy relied on it to sustain them against the people, the bankers hoped that it would aid in renewing their prosperity, the masses welcomed it as the long-awaited instrumentality for shaking off the yokes of the rich bourgeois that weighed heavily upon them. These pleasing expectations were mere illusions. A crushing and pitiless despotism affected Florence, and when, by a vigorous impulse, she reconquered her liberty, it was only to become a prey to civil discord and a victim of catastrophes of every kind.

The Florentine Republic had fallen from the summit of affluence to the depths of distress. During the administration of the Duke of Athens bankruptcies had multiplied. In the month of January, 1345, the Bardis and Peruzzis, who had stood their ground until then, stopped payments, dragging down in their ruin their fellow-citizens and the foreigners who had trusted them with the money wherewith the loans to the English and Sicilian kings were made. The failures also wrought destruction to numerous other companies and individual merchants. Among the more important concerns whose extinction history records were the houses of Acciajoli, Bonaccorsi, Cocchi, Antellesi, Corsini, Uzzano, and Perendoli. This period is one of the darkest in the annals of Florence. The Bardis paid seventy per cent. to their creditors, the Peruzzis much less. The bankrupts were treated with severity. All their property was taken away and turned over to the creditors, but in 1347 the Bardis and Peruzzis obtained a settlement. This cataclysm did not, however, exterminate all the bankers of Florence. A banker was destined to erect the monarchy in Tuscany a century later.

THE MEDICI.

Giovanno di Bicci dei Medici had made large profits in banking transactions, principally during the Council of Constance. His bank was in the service of the Pope, on which score he enjoyed immense business credit throughout the world. His alacrity in aiding with his purse those who needed relief, his caressing ways with the people, and his moderate bearing in times of partisan excitement, won for him general esteem, and his reputation grew apace. When the people revolted on account of oppressive taxation, his intervention brought about a lessening of the burdens. The rich and the citizens conferred upon him the dignity of Gonfaloniére, and he discharged the duties of this station in the most honorable manner. Both his credit and his authority were inherited by his two sons, Cosmo and Lorenzo. Cosmo interested himself in public affairs with ardor, and obtained a numerous following. He was very popular with the exiles, to whom he sent, through bills of exchange, the succor that they required for their families and friends; and also with the condottiéri (leaders of mercenaries), who deposited their savings with him or asked him for advances.

His great influence aroused the jealousy of the Albizzi family, who had him condemned to banishment, but he was recalled a year afterward, and, in turn, the Albizzis were exiled. From that time Cosmo became the real master of Florence, although he did not abandon his commercial and financial business. He was the proprietor of all the alum mines of Italy; he prosecuted trade with India by way of Alexandria; and there was no city in which he did not have a banking office. He loaned important sums to the King of England and the Duke of Burgundy, and died after having exercised for thirty years an enlightened dictatorship over his country that contributed to its greatness. His son, Pietro de Medici, succeeded him, receiving the cordial support of the great families of Florence, which were under obligations to the father. But as his fortune was cut in two by bad management, excessive expenses, and his inability to attend personally to his business, he called in his moneys from borrowers, designing to invest them in lands. An acute crisis ensued, and the failures attending it were laid at the door of Pietro de Medici. He was deprived of the title of Gonfaloniére, which was bestowed upon Nicolas Soderini. The fortunes of the Medicis were not, however, at an end. Pietro’s sons, Lorenzo and Guiliano, seized the reigns of power. A conspiracy was plotted by the Pozzis, bankers of the Holy See, and related to the Medicis by blood, and Guiliano was assassinated. Lorenzo de Medici thereupon became sole ruler of Florence. He gave up all his commercial and banking interests, and with him terminates the financial history of the family. On the other hand, the Medicis did not at all lose their business shrewdness, and they still knew quite well how to lay out their money remuneratively. Fernando de Medici, Grand Duke of Tuscany, in 1596 loaned 300,000 crowns to Henry IV. of France, in exchange for the privilege of collecting certain taxes. Sully repaid the 300,000 crowns and annulled the lease. From the facts given, the general character of Florentine banking will be pretty well understood.

Thanks to the offices that they operated in most of the large cities, the bankers had a monopoly of exchange transactions, which were rather mysterious and hardly comprehensible to persons not versed in trade economy. Money exchange is but a phase of business in coinage. They opened credits for merchants and manufacturers, and despite the ecclesiastical disapprobation, they took exorbitant interest. They received funds on deposit and made them thrive. Keeping this end in view, they were not afraid to lend the deposits to sovereigns. But in that epoch public debt and negotiable securities were almost unknown, so that depositors in the banks were not aware how their funds were employed. They kept watch only on the bank that had received their savings, and were not creditors of the borrowing State. In these circumstances of what may be termed confidential responsibility we must look for the causes of the downfall of the powerful Bardi and Peruzzi houses. The mistakes made in the fourteenth century, with the excuse of ignorance, have been reproduced in our time, and even at a quite recent date. The collapse of the Crédit Agricole in France, and that of the house of Baring Brothers in England, were superinduced by a cause absolutely analogous to that which ruined the Florentine bankers—the insolvency of the States to which loans were given.

CHAPTER V.

BANKS AND BANKERS IN SICILY.

THE MONEY-CHANGERS.

CONSCIENTIOUS researches among the archives of the Sicilian banks have been made by Professor Vito Cusumano, and from his thorough knowledge of the subject, especially in its older aspects, he has compiled an admirable “History of the Banks of Sicily,” to which we shall be indebted for some of the facts presented in this section of the treatise on Italian banking.

Money-changing in Sicily appears to date back to very early times. The Arabian geographer Ibn Hawqual saw the money-changers’ industry in full operation in Palermo in 977 ad “The most of the markets,” he says, “are between the Mosque of Ibn Siglab and the new quarter. The changers and druggists are established outside the city.” From that period the word bankerius, as synonymous with campsor or cambiator, has been in use in Sicily. In the fourteenth century the two professions of changer and banker were always united, as, indeed, they were in continental Italy. The changers or bankers were subject to special regulation. They were public officials, and in their capacity as such were required to certify, free of charge, the weights of moneys. They made charges only on exchange transactions.

The oldest law relating to bankers appears in the “Customs of Palermo,” under the head “Jura Municipalia,” and is entitled “De forma et modo distributionis novæ denarorium monetæ.” It prohibits the sale of old moneys except by changers, who are licensed to exchange, weigh, and distribute the new money in the entire kingdom. The most frequent transactions were exchanges of new for old, good for mutilated, and domestic for foreign coin, and vice versâ.

“THE KING’S EXCHANGE.”

The high profits yielded by this trade engaged the attention of the kings. The business of money-changing was made a royal right, and an institution styled the “King’s Exchange” was in operation during the thirteenth and fourteenth centuries, which soon found imitation in England and Piedmont. The King’s Exchange was not, however, an absolute monopoly, for in certain cities private persons were permitted to exchange moneys on condition of procuring a license and paying a tax. In others, on the contrary, the privilege was sold to the highest bidder for the benefit of the Crown. By severe restrictions, the money-changers were kept within bounds. A decree of 1351 provided heavy penalties for all guilty of clipping, scratching, or otherwise mutilating coins, required the changers and bankers to use exact scales and make just weights, and prohibited the employment of defective weights. It instructed bankers to take out no more than three pence commission for light-weight carolins exchanged for fractional pieces, but allowed four pence in case customers desired full-weight silver carolins. Bankers were forbidden to keep on their premises any counterfeit money or coin not bearing the royal stamp. This decree is curious because of its expressed toleration of coins that had suffered loss of weight from use. Carolins that had not lost much were accepted by the changers, but if their value had been considerably reduced they were cut up. The limit of weight-loss allowed was about 6½ per cent. There is no reference in this measure to exchanges of foreign moneys. It is probable, however, that much foreign coin came to Sicily for exchange in the thirteenth and fourteenth centuries through the merchants of Genoa, Pisa, Venice, and Florence. Until 1438 no law existed regulating the exchange rate for foreign money. In that year, it was provided that the bankers should not retain more than one grain for a pistole or more than eight pence for a half-pistole. The decree of 1351 was followed by many other laws intended to control the money-changing traffic. All the measures of the fifteenth and sixteenth centuries that fixed the values of new coinages specified at the same time the legal rate of exchange for foreign silver money with the Sicilian. The frequency of variations in the values of coin, the large volume of counterfeit money, and the necessity for withdrawing light-weight circulation gave the changers an indispensable status in the economy of the country.

BANKING PROPER IN SICILY.

The large number of banks founded in Sicily in the thirteenth, fourteenth, and fifteenth centuries is accounted for by various favoring circumstances—such as the liberty granted every citizen or foreigner to open a public bank in Palermo or elsewhere, the privileges enjoyed by the inhabitants of Palermo, the permission given aliens to acquire full rights and all consequent advantages in the city after a year’s residence, the favors and immunities conceded to foreign merchants, and the commercial prosperity of Sicily. Data concerning the bankers of the thirteenth century are meagre, but information is very much more satisfactory for the fourteenth century, when the deposit system was introduced. During that period, seventeen banks existed, thirteen of them in Palermo, not counting the branches of the bankers of Italy, some of which—especially those of the Bardis and Peruzzis—were important. The bankers and changers of Palermo had their establishments in the street now known as de la Loggia. The notaries were in the same quarter, and notarial documents were legalized and attested by the bankers.

The bankers were much in favor. Their profession was deemed most honorable, and they held the principal offices in the cities where they lived. Like the bankers of Florence, they had among their clients the sovereigns of Europe, who often manifested gratitude for services rendered by granting them rewards and privileges. The province of banker had an official character. The opening of a bank was attended with much solemnity. To engage in the business a royal license was necessary, and the banker had to pay a sum as security to the chief magistrate and furnish the pretorian court with a solvent bondsman (frequently another banker). No bank could be established with less than 15,000 crowns of capital, called “the bank’s column” or “pillar”; and a supplementary guaranty of 15,000 crowns by a bondsman not associated in the bank was required. After these formalities had been complied with, the municipal magistrate opened the bank, the ceremonial being heralded by the trumpet of the town-crier. The following is the official notification of the installation of the Bank Innocenzo Rizzo at Trapani, September 14, 1577: “Notice is given to each and every citizen and stranger, residing in the kingdom or out of the kingdom, that the most High and Excellent Lord Viceroy has granted license, by virtue of his Vice-regal powers, to the worthy Innocenzo Rizzo to open and to keep a public bank in this city, and to transact business the same as other bankers of the kingdom. Upon receiving this authorization the worthy Rizzo has given security of 10,000 crowns and the additional bond in conformity to the decree of the Viceroy, as appears in the records of the Honorable Lord Sheriff of this city. Be it known to all that the worthy Rizzo at present keeps a public bank, with which all who wish may do business, as with other banks that the worthy Rizzo may see fit to open. And for universal instruction this proclamation is made.” In a similar manner, the municipal authority announced the dissolution or failure of a bank.

LEGAL REGULATION OF BANKING.

The law governing banking was very exacting. It indicated with particularity the amount of gold, silver, or copper coin that could be given in each payment. Such precautions show that the banks and the changers did substantially the same kinds of business, dealing principally in money. The accounts of the Sicilian banks were kept in “double entry,” and with high intelligence. In this connection, it may be remarked that double-entry bookkeeping, familiarity with which was spread in the seventeenth century by the celebrated Bruges mathematician Simon Stevin, was invented in 1348 by the Benedictine monk Angelo Senisio, of the Monastery of St. Martino della Scala, in Palermo. In the municipal library of Palermo is preserved a manuscript of 1398, entitled “Book of Commercial Arithmetic and of Geometry,” by an anonymous author, who demonstrates that the technique of exchange, commerce, and banking was quite well developed at that period. A chapter of this volume is devoted to the keeping of current accounts by single and double entry. The bankers’ books were authoritative in judicial proceedings, and were accepted the same as notarial documents. The accounts of liquidated or failed banks were scrupulously kept by conservators, or administrators, appointed by the authorities; and from this circumstance our knowledge of Italian banking is much more complete than that of French.

THE BANKS AND THE GRAIN TRADE.

We have already considered the trade in precious metals. The bankers had another line of business much more important—that in grain. They seem to have acted principally for the account of the authorities, who in times of dearth called on the banks to facilitate the importation of cereal products. In 1479, the banker Giovanni Costanzo bought 6000 measures of wheat on the order and for the account of the Senate. He rendered incalculable services to that body in grain dealings. There are numerous records of security furnished by the bankers for grain purchases in behalf of the city of Palermo. Independently of such enterprises for the public welfare, the bankers carried on a grain business with individuals. They had agents and representatives in the interior of the island, who bought, sold, imported, and exported cereals. To this traffic they subsequently added transactions in silk, linen, and woolen materials, maintaining for that purpose offices throughout the world. The bankers of Venice operated in the same manner in drugs and spices. This merchandising department of the banks, as will be readily understood, was but an accessory branch. Their specialty was really the purchase and sale of bills of exchange—a most complicated branch of business. The banker had to calculate the relative worth of Sicilian and foreign moneys, the higher value of the best money which determined the exchange rate, and finally the interest on capital. To indicate the profits realized, it is sufficient to say that the gains made by a Sicilian banker from his drafts on a Naples banker did not fall below thirteen per cent.

DEPOSITS AND ACCOUNTS CURRENT.

The most important office of the bankers, distinguishing them sharply from the money-changers, was the reception of deposits of funds. Incidentally to their deposit business, the banks made transfers and issued trust certificates, deposit and credit vouchers, and call orders. Bank deposits in Sicily go back to the first half of the fourteenth century. The banks not only took personal deposits, but had the keeping of the funds of the courts. The deposits of various kinds increased in the fifteenth century, as a result of the ever-growing number of bankers and the safety that they offered to depositors. Even the lower classes kept bank accounts. In 1513, when the failure of the bank of the Battista Lombardi heirs occurred, the municipality devoted a rather important amount for payment of deposits less than ten ounces (127.50 francs), to soothe the common people, who threatened to rebel. Like steps were taken in 1530 at the time of the downfall of the banks of Giovanni Sanchez and Benedetto Ram.

The deposits that flowed into the banks came from widely varied sources. The funds of minors and widows were received; sums in litigation; guaranty funds of the accepted bidders for public contracts; duties; revenues from the purchase of domains; inheritances through testamentary disposition or by judicial decision; the current cash of merchants and manufacturers, etc. The bankers kept current accounts in other banks. The Public Treasury deposited its receipts with them, and they disbursed the sums due the State’s creditors. In 1550 the city of Palermo created a municipal bank, called the Tavola, but gave it no preference in the matter of deposits of public money. The State revenues were placed in the banks, which served as Government receiving and disbursing institutions, the same as cash agencies for individuals, and the deposits were drawn upon by orders—exactly the procedure observed to-day in nearly all countries.

NATURE OF THE DEPOSITS.

The bank deposits may be classified as follows: Deposits of valuables in trust, deposits of court funds in trust, conditional deposits, and open deposits on current account—the last-mentioned being the most important. It does not appear that interest was allowed at the first, for such a practice would have incurred the censure of the Church; while, on the other hand, it cannot be asserted that interest was not in vogue by the end of the sixteenth and the beginning of the seventeenth centuries; for certain documents of that time allude to an interest of five per cent. granted on deposits. Deposits were seizable, excepting those in the Tavola of Palermo. The banks employed the deposits for their own business; only taking care to keep on hand sufficient resources to cover withdrawals. Moreover, they were not required to return to depositors the identical coins paid in, but only their equivalent. Bank payments and payments through banks had their origin in Sicily in the same era when deposits began. Such transactions were probably the chief services rendered by the credit institutions. To take the place of the manifold moneys in circulation they substituted for transfer purposes a unique fiat money, whose face value and quality were unquestioned. By such transfers they economized the use of metallic money and imparted great security to transactions, since the remnants of payments were attested by their books, which were court records.

USES MADE OF DEPOSITS.

The funds on deposit were used for loans to individuals, to the royal court, to the Senate of Palermo, and other administrations, on short or long terms, with or without collateral or mortgage. The interest forthcoming from these transactions ranged from five to fifteen per cent. Civil loans, which were very common in the fourteenth century, were contracted before a notary, and were always made of record with the words, gratis et pro bono amore (gratuitously and for good will), in order to comply with the requirements of the Church; but commercial loans, variously secured, gave rise at times to very high interest charges. Loans to the royal court and the Senate of Palermo were numerous in the fifteenth century. Certain advances were made direct by the bankers to the State and municipal treasuries. They were at long maturity and were protected by mortgages on buildings or by the assignment of some departments of the public revenues. The interest was between a minimum of five per cent. and a maximum of fifteen per cent. Other loans were contracted on bills of exchange signed by the city or the State, with privilege of renewal. These were simple discounts. Finally, credits were opened for merchants, usually secured by collateral or mortgages.

CERTIFICATES OF DEPOSIT—THEIR IMPORTANT USE AS CURRENCY.

In connection with the banks of Naples, we shall speak of the famous open-credit business, which was as common in Sicily as in continental Italy. It led to the issuance of securities of diverse character.

At the beginning of banking, the bankers gave no receipts to depositors. They contented themselves with inscribing the amounts of deposits in their books, and the confidence they enjoyed was such that these book records were satisfactory to the public. In the first years of the fifteenth century, however, the bankers began to issue deposit receipts, called apodixa, wherefrom, by corruption, are derived the words podisa, polisa, and polizza (policy). This was the origin of the “policy” of insurance vernacular. The receipts were repayable on call and “to bearer.” They were consequently equivalents of the modern bank notes, and circulated like the paper money of to-day.

Another form of bank orders was the certificatio banci, a receipt certifying the existence of a deposit in a bank. It was issued chiefly to certify deposits made or held by order of court. The certificatio banci was followed by the féde di partita di banco (trust certificate), which may be regarded as an improvement. It was employed exclusively for deposits for the courts. These different receipts and certificates of the fifteenth century were issued on loose paper, bearing neither the signature nor the stamp of the bank, nor even the date, but indicating merely the book and folio where the deposit was entered. In the sixteenth century such papers were always signed by the bankers. They were of large importance, having a notarial character, since the banker noted upon them the purpose of the deposit and cited all public acts applicable to it. The partita di banco was the original and the féde was the duplicate.

From the féde di partita di banco was evolved, naturally, the certificate of deposit (féde di deposito); and from it the credit certificate (féde di credito), whereby the banker declared his books to show a fixed amount for the account of a depositor. All these undated and unsigned instruments apparently served principally in lawsuits as proof of facts alleged by one or the other party. They were based in every case upon the madre féde, or account current kept with the banker. Most of them were used in lieu of money, and were accepted as ready cash. In addition to such more or less perfect substitutes for coin, we find the ditta di banco (literally, “the word of the bank”), which was a promise to pay at stated maturity. Sometimes this was issued upon a deposit; sometimes the party in whose favor it was drawn provided for its redemption only at the time of maturity. Thus it was a near analogue of the certified acceptances of modern banks. It was extensively used in Sicily. In most of the money marts, a banker was intrusted with the payment, and the creditor received the ditta di banco as a voucher. Often, too, the ditta di banco served for advances to muicipalities in exchange for the transfer to the bank of branches of the revenues. The bankers gave cities time engagements that could be utilized for raising funds by discount. Occasionally they signed bills for the benefit of the lessees of the salt revenue, who paid over to them the receipts. These orders, although not payable at sight, passed as money in discharge of debt.

People have tried to perceive in them the rudimentary bank note; but that is going too far. The characteristic of the bank note is its payability at sight, whereas the ditta di banco was expressly redeemable at maturity. The circulating power of this paper was manifestly due to the nearness of maturity and to the advantages that it offered over the current hard money. If there had been a circulation of good quality it could not have lasted. The much-admired circumstance of the facility with which paper equivalents of money circulated in Italy is the most convincing proof of the badness of the money.

THE POLIZZA.

Among the numerous varieties of paper in vogue among the Italian banks, the polizza, or trust certificate, deserves special attention, for it was the embryo of the cheque. The first polizze are found at the beginning of the fifteenth century in the form of orders to pay, issued by competent authority against deposits that had been placed in the bank in trust by decision of the court. Later, the Senate of Palermo, having determined to deposit the tax receipts with the banks, drew on the bankers by pay orders. The Viceroys often employed the polizze, and found in them an excellent remedy for delays in payments; for in the event that a bank lacked wherewithal to conveniently pay at the time, accommodation for the beneficiary of the order was obtained at some other bank. Bankers used polizze for transactions among themselves, to settle their debts in various parts of the island, and to make clearances. These orders were seemingly not transferable by indorsement at the start, but an instance is recorded of a polizza transferred by that method in 1560. To draw a polizza it was necessary to have funds at the banker’s, who refused to honor orders if the drawer had not sufficient credit.

DECADENCE OF SICILIAN BANKING.

We have traced the origin and development of the banks of Sicily. Their fate proved to be no better than that of the great Florentine institutions of the Peruzzis and Bardis. In the fifteenth century, two important banks went down. In the second half of the sixteenth century those in existence disappeared almost completely. On January 28, 1514, the bank of the heirs of Battista Lombardi stopped payments. The pretor and aldermen immediately communicated with the Viceroy, who was absent from Palermo. The panic was such, and the mob that besieged the bank was so large, that a revolt was feared. The pretor (mayor) and aldermen made personal efforts to calm the people, promising that all deposits below two ounces should be paid back within a few days. They seized the books and furniture of the bankrupts and summoned experts to examine the accounts; who, having made up the balance-sheet for February 1st, showed that there was a deficit of 70,000 florins. The Viceroy ordered the appointment of receivers. They announced that the proprietors, to pacify the needy people, had handed them 1000 ounces for the payment of deposits less than ten ounces. From that time failures of banks multiplied, and, unfortunately, a number of fraudulent bankrupts appeared. The causes of the failures, although various, may be reduced to the following: the exorbitant taxes on the import and export trade; the total loss of Sicily’s sphere of influence in Africa; a defective financial system; and above all, varied reasons of misgovernment, including the insatiable rapacity of the Viceroys, who had accepted innumerable bribes; and, as a still further cause, may be cited the almost absolute ruin of municipal finances and the generally bad monetary condition of Sicily. The bankers, to whom eventually all public and private business came, were doubly injured. At first, like all other citizens, they were able to bear the heavy burden of public charges; but later, from the nature of their trade, they had more to suffer than the rest of the community because of the impoverishment and falling away of their clients.

Signor Cusumano, whose work on the banks of Sicily must always be consulted, is inclined to attribute the commercial disorders that broke out in Sicily in the sixteenth century to a general cause—the disturbance of values occasioned by the abundant inflow of gold and silver from the New World; although he says that he has discovered no immediate instances in Sicily that permit him to establish the connection. It appears to us that Signor Cusumano is right; for that was an era of inflation, and it is well known that inflation is invariably attended by great excesses in speculation, which infallibly bring catastrophes. This period may be compared to the one following the discovery of the Australian and Californian gold-fields, which brought on the terrible crisis of 1857, that paralyzed finance throughout the entire world.

In Sicily, stringent penalties were specified for persons going into bankruptcy on false pretences. Even the death penalty could be enforced. Similar punishments were visited upon all assisting bankrupts to secrete their books, moneys, chattels, etc. The laws, on the other hand, were lenient toward honest bankrupts, who could obtain the benefits of assignment. By voluntarily abandoning all their assets to creditors, unfortunate debtors could escape imprisonment. At first this clemency could be accorded only by special grace of the sovereign, but afterward the courts were authorized to bestow it. Sicily never had in force the harsh practice that prevailed in other Italian countries, known as the “stone of reproach” (pietra del Vitupero), whereby the bankrupt was placed upon a stone scaffold and a public reproof was addressed to him. Honest bankrupts, moreover, could secure a settlement by license from the Viceroy. But the advantages of these laws were withheld from bankers who failed after the beginning of the seventeenth century.

From the history of the Sicilian banks it is shown that their transactions and scope closely resembled those of the banks in the various parts of Italy, notably in Tuscany. In both countries we have perceived the operation of unwholesome influences, which were responsible in those ages, as they are still, for the destruction of credit establishments—the bad faith of governments and ignorance of the economic laws governing money circulation and the distribution of credit.

[* ] “Documenti storici concernenti il Banco di Napoli.”