The Online Library of Liberty

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• 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 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.

PART III.

BANKING IN SPAIN.