The contribution of the banking system to monetary equilibrium and economic stability: Italian experience

Abstract

The present article by Dr. Menichella, Governor of the Bank of Italy, refers to four historical episodes in Italian banking. Two of them - the boom of the 1880s followed by the crisis of the 1890s and the inflation of 1924-26 - go back to the time when Italy had not yet unified the note-issuing privilege or established a single Central Bank. The third episode is the inflation of 1946-47 and the manner in which the authorities succeeded in bringing it to an end without incurring the heavy and long drawn-out deflation reaction which had followed earlier inflationary processes. Finally, he turns to the less stormy events of the last few years. Dr. Menichella's analysis of these episodes is richly illustrative of the breadth of vision that must guide the banker, and more especially the Central banker, in the exercise of his art. Past experience provides, nonetheless, certain more specific lessons concerning a number of principles on which the Governor lays special analysis. The application of such principals has formed an essential part of recent monetary policy in Italy, as is shown in a rapid sketch of the experience of the last ten years. Reference is given to two auxiliary weapons that have strengthened the Bank's position on particular occasion. The first is the power which the Bank of Italy has, as the executive organ of the Interministerial Credit Committee, of expressing its views on the opportune of granting permission for new capital issues. The second is the authorisation which a commercial bank is obliged to seek from the Bank before it can extend credit beyond a certain amount (a fixed percentage of its capital and reserves) to a single customer.

JEL: E31, E52, E58, G21