Opera Omnia Luigi Einaudi

The bank of Italy report for 1908

Tipologia: Paragrafo/Articolo – Data pubblicazione: 17/04/1909

The bank of Italy report for 1908

«The Economist», 17 aprile 1909, pp. 818-820




This year at the meetings of the shareholders of joint-stock companies were heard from the presidents of the boards of directors speeches very different in character from those which were heard in the golden days of 1906 and 1907. Dividends reduced and sometimes passed by, losses and reductions of capital, companies dissolved – that is the tale which the Italian shareholder was learning, much to his disappointment, in the last week of March and the first of April. This is not, fortunately, the whole tale; the old-established companies, with high reserves, have stood well against the storm of falling prices and dwindling profits. But to new companies the year past has been fateful.



The changed situation reflects itself in the reports of boards of directors of the leading banks in Italy. The Società Bancaria Italiana, which in November, 1907, was for a moment doomed to ruin, has been reorganised, and the reduced capital has gained a dividend of 5 per cent. The Banca di Liguria has reduced the dividend from 9 to 7 lire. Of the two foremost Italian private banks, the Banca Commerciale Italiana (105 millions lire capital and 35 millions reserves) has maintained the dividend at 45 lire (9 per cent.), while the Credito Italiano (75 millions lire capital and 9 millions reserve) has reduced it from 32.50 to 30 lire (6 1/2 to 6 per cent.). Time will show which action has been wiser. One wonders, however, that the Banca Commerciale Italiana, after having, in its official report, very wisely advised the industrial companies to reduce their dividends in the present year of depression and of forced economy, should not have followed its own timely and wise advice.



But the report which has aroused most attention in Italy, and which may truly be described as the most important financial document of the year, is the report of the director-general of the Banca d’ltalia, Mr. Stringher, to his shareholders. It is, in spite of the industrial and banking stagnation of our country at the present moment, a highly gratifying document, as it definitely places the Bank of Italy among the leading banks of issue of the world, with its capital reconstituted with a sound circulation and a gold reserve which 15 years ago no one could have hoped for. Many of the readers of the Economist will remember the utter ruin of the Italian banks of issue prior to 1894. The building crisis was raging in Rome; the wine crisis had ruined the landed proprietors. The banks, to cover themselves, had to acquire house property in Rome and other great cities, and enormous agricultural domains. Last, but not least, it was discovered that the banks of issue were in the habit of lending sums not only to trade customers, but also to politicians of the worst kind. One of these banks, the Banca Romana, to conceal its misdoings, had gone so far as to emit a double series of notes; that is to say, to falsify the note circulation. It was in such circumstances that the Bank of Italy was born in 1894 to succeed the Banca Nazionale and the two Tuscan banks of emission, and to liquidate the rotten Banca Romana. How stupendous were the losses caused by the mismanagement of the past may be argued from the fact that the old assets of the Bank of Italy, which altogether amounted to 519,665,000 lire, some 200 million lire were considered as utterly lost, apart from the consequences of the liquidation of the Banca Romana. The years 1894-1908 were years of patient reconstruction, and today the work may be said to be accomplished. The shareholders had to consent to a reduction of the capital of the bank from 210 millions to 150 millions, and to an augmentation of it to 180 million lire by means of a call of 100 lire per share. A yearly sum of 6 million lire, with interest, was taken from the annual profits to constitute a special reserve to compensate the losses prior to 1894, and another sum of 2 millions a year, with interest, was to compensate the losses of the liquidation of the Banca Romana. This last liquidation is to continue up to December 31, 1913, but it appears that the accumulated reserve (which at December 31, 1908, had risen to 40,333,170 lire) will be sufficient to compensate the probable losses. The main liquidation of the above said 519,665,000 lire of “immobilizzazioni” has ended December 31, 1908, with a surplus already realised of 14,254,000 lire, which the director-general hopes to raise in due time to 32 million lire. The Bank’s success has been achieved: (1) by the sacrifices of the shareholders, which we have mentioned; (2) by the patient and careful realisation of the assets of the bank. The realisation of these assets was made possible by the economic progress in Italy, which made saleable lands and houses which formerly were unsaleable. Today all the assets of the Bank are liquid; ad to the 180 millions of capital are to be added 48 millions of ordinary reserve and 12 millions of special reserve.



With the progress of the internal reconstruction of the Bank, a similar advance took place in the services which the Bank was able to make to the community. In the following figures are summarised the great change which has taken place since December 31, 1894:



(In Lire, 000’s Omitted)


December 31







Gold reserve




Silver reserve




Inland bills












Foreign bills




Foreign securities





Note circulation




Current accounts and deposits at notice




Proportion of the reserve to the note circulation






The change has been great indeed. The note circulation has risen from 826 to 1,389 million lire, and at the same time the proportion of the reserve has gone up from 43.39 per cent, to 77.46 per cent. In 1894 the note circulation, though small, was not properly backed by gold or silver, but was issued largely against the baneful “immobilizzazioni”, or houses, land, and doubtful credits. If the Bank had to change notes in gold, it would have had soon to admit its incapacity to do its duty. Therefore the notes circulated by force of law, and were not admitted to change in gold. The “aggio” was at its highest, and 100 lire gold exchanged for 111.08 lire paper notes (115.70 maximum, 106.37 minimum). Year by year the situation has improved. The current accounts and deposits at notice have diminished, as the Bank of Italy pays a minimum interest on the deposits (0.50-0.75 per cent.), and depositors prefer therefore the savings and other banks, which pay from 2 to 4 per cent, on deposits. The note circulation has gone up not for the sake of loans to politicians or to landed or house proprietors, but for satisfying the real need of trade. To counterbalance the growing note and deposits liabilities the Bank has increased its gold reserve from 300 to 932 million lire (from 12 to 37 million pounds), apart from the increment of silver reserve, while the inland bills progressed from 184 to 388 million lire, the advances on securities, silk, &c, from 27 to 77 millions. Meantime, the “aggio” on paper notes has disappeared.



If we look at the banking operations of the last year (1908) compared with 1907, we find the total discounts decreased from 1,618,561 in 1907 in number to 1,466,224 in 1908, for a sum of 2,043,287,772 lire in 1908, against 2,261,968,257 lire in 1907. The crisis has made itself felt; but as the mean lenght of the discount increased, the mean sum used in discount operations progressed from 368 to 372 million lire. In 1907 the normal or official rate of discount had been advanced from 5 to 5V2 per cent., and the Bank consented to apply a lower or special rate only to 26.16 per cent, of the bills discounted. In 1908 the normal rate was reduced in January to 5 per cent., and later special rates of 472 and 4 per cent, were granted to high-class customers. The discount operations in 1908 may be classified as follow:





Number of bills Discounted


Sum Total in Lire

To 100 Lire




From 101 to 500 Lire




From 501 to 1,000 Lire




From 1,001 to 5,000 Lire




From 5,001 to 10,000 Lire




From 10,001 to 20,000 Lire



From 20,00i Lire upwards





The great majority of the bills discounted are therefore small bills, which is an index of the useful services of the Bank to a multitude of customers.



The advances on first-rate securities, on silk and other goods, increased from 2,546 for a sum of 469,768,411 lire in 1907 to 2,941 for a sum of 501,979,937 lire in 1908. This was the effect of the law of December 31, 1907, which diminished the tax on advances from 1 cent, or a lira par day, and per 1,000 lire to 1/4 cent, for the advances on State Rentes and 1/2 cent, for all other advances. The gross profits of the year amounted in 1908 to 37,826,108 lire against 35,645,269 lire in 1907, an increase of 2,180,839 lire. The expenses were 25,265,063 lire, against 26,167,563 lire in 1907, or a diminution of 902,500 lire. The net profits were therefore 12,561,045 lire, to which were added the balance brought from 1907 of 268,127 lire. The sum total of 12,829,173 lire was divided as follow: – 1,215,834 to reserve fund, 11,400,000 to shareholders, and 213,338 lire brought forward. The dividend on the 300,000 shares was fixed at 38 lire per share (6.33 per cent.). In 1907 the dividend was 30 lire, in 1906 only 20 lire, and previously 18 lire. The shareholders may congratulate themselves on the increased dividend, and on the hope of further increment in future years as the work of reorganisation of the Bank of Italy is come finally to an end. The public Treasury will also benefit in future years from the increased profits of the Bank.



The one black spot in the whole story is the effect which the announcement of an increased dividend (from 30 to 38 lire per share) by the Bank of Italy has had on the Italian Bourses. As the Bank of Italy share is undoubtedly the share most widely known by the capitalist, the Stock Exchange meneurs had a powerful argument for a rise in quotations of the shares of other concerns. The movement is quite artificial and is doomed to failure; as no one among the capitalists will be persuaded to buy shares of other concerns, which may have distributed a dividend higher than the profits really obtained, merely because the Bank of Italy in the 15 years past has been extremely well managed, and has acquired a prominent position among the European banks of issue.

Torna su