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.

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.

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