Posted inHistory Naples TwoSicilies

The Tale of Two Banks

July 25, 2023

Introduction

Before we talk about banks, let’s remember what the economic situation of the Kingdom of Two Sicilies was compared to that of all the other states of the peninsula, including the Kingdom of Sardinia (Sabaud Kingdom). The following figure shows this situation.

Money reserve

In a nutshell, the economic situation was the following

  • The taxes were lower than those of other states of the peninsula.
  • State property and church assets exceeded the ones of the other states.
  • The public debt was small and four times lower than that of Piedmont and much lower than that of Tuscany.
  • The amount of coinage in circulation was twice the one of all the other states combined.
  • Francesco Nitti, prime minister of the newly formed kingdom of Italy, in his book “North and South” said that at the time of the introduction of the “lira”, the new Italian currency, from the Kingdom of Two Sicilies’ coffer was “withdrawn” 443.3 million of various coinage of which 424 million were silver coins, accounting for 66% of all circulating coins in the Italian peninsula.

Bank of Naples and Bank of Turin

In 1881 the GDP of southern Italy was still at the same level as that of the north and this was the result of the resistance brought about by southern entrepreneurs, but also the result of the policy carried out by the Bank of Naples.

See what the economist Carlo Cottarelli had to say in regard.

After unification, the large Neapolitan bank realized that financing the industries of the former Kingdom of the Two Sicilies was no longer profitable, because, as we will see, they had no development prospects and indeed were often destined to be liquidated by the “liberating brothers ”.
Then, the bank was transformed into a land credit institution, and with the capital, which it continued to raise, it began to finance agricultural activity. The South could be forced to close businesses, but it was impossible to take away its land and it was, therefore, in the land it was necessary to invest.

The following are the gifts brought by the “freedom-fighters” brothers who came from the north uninvited

Customs duties – First blow

However, things suddenly changed when on July 14, 1887, Depretis (historic left!!) had the parliament approve a law introducing heavy duties on industrial products imported from abroad. With the law of 1887, it is generally said that the commercial war with France began, from which most of the imported goods came and which was actually the country most affected.

The intent of the leader of the historical left was, in reality, to eliminate competition from foreign industries from the national territory to favor the growth of the Italian ones, which were all in the north of the country. In other words, it was a protectionist measure.

The response was not long in coming and France promptly imposed equally high duties on products from the peninsula, that is to say on agricultural products imported from the South, which sent half or more of its agriculture products to France.
Immediately afterward, Austria, which absorbed 17% of these products, increased its tariffs, obviously, the other states did too, and so tons of fruits of the earth, which suddenly became too expensive, remained unsold in warehouses of the South.
The consequence was that their prices collapsed, while the debts contracted by companies for the purchase of machinery from the north and the modernization of crops did not decrease.

Thus, the economy of the South was brought to its knees in a short time and many peasants in its countryside lost all sources of income.

It was only then that real emigration began in the former kingdom, what in the collective imagination is seen as an exodus, and only towards the end of the 1890s, when the provisions of 1887 fully unfolded their effects, the number of Italians who left from the old Kingdom of the Two Sicilies exceeded the number of those who left from the north.
From the last years of the nineteenth century until 1914, i.e. until the outbreak of the First World War, with which all European migratory flows were interrupted, more than 4 million people left the South.

Double blow in reality

The introduction of the tariffs of 1887, I referred to previously, was not the first blow, but yet another.
The first blow, if we want, was the elimination of duties carried out by the Ricasoli government as a result of the generalized application of the Piedmont legislation.
Simply put, the Kingdom of the Two Sicilies applied a system of protection for its nascent industrial production with heavy import duties on finished products. The elimination of duties, not followed by a policy of support for the industries, dealt a mortal blow to the southern industrial sector. This was coupled with the complete dismantling of the sector and, in some cases, followed by moving machinery north. Machinery that was “bought” as scrap metal. We’ll talk about this in another post.
After that, in the following years, the economy of the South, and the Bank of Naples, concentrated on the agricultural sector, which instead benefited from a free market with the absence of customs duties. At that point, the introduction of tariffs of 1887 came into play, which essentially closed the possibility of exporting agricultural products to France and to other European nations. So in reality it was a double blow by the North against the South, and the foundations of economic and social differences were laid out.

Further advantages were ensured for the subalpine economy in 1866, when the law on forced tender guaranteed the National Bank in the Kingdom of Italy, the largest institution in Turin, a strong increase in its liquidity, allowing the transfer in its favor of silver coming from the Bank of Naples.

Legal (fiat) tender refers to a policy intended to establish a compulsory fiat currency implemented by the newly formed kingdom of Italy after its unification in 1861. Under this policy, only the Banca Nazionale, the central bank of Italy in Turin (Piedmont), was authorized to convert silver and gold into paper money, effectively monopolizing the currency conversion process.

Overall, fiat tender was a significant policy implemented after Italian unification to establish a unified monetary system that negatively impacted the Banco di Napoli.
The following were some negative impacts:

  • Asset transfer. With the centralization of financial power, efforts were made to transfer assets from regional banks, including the Banco di Napoli, to the Banca Nazionale. This included the transfer of gold and silver deposits to central bank control.
  • Economic disparities.
    The concentration of financial power and control in the Kingdom of Italy, mainly in the northern regions, contributed and still contributes to the perpetuation of economic disparities between the north and the south. The Banco di Napoli’s loss of control of its assets and the centralized nature of the banking system meant that economic decisions were often made in favor of the northern regions which became more industrialized and prosperous.
  • Shift of economic focus. Unification and subsequent economic policies prioritized the development and industrialization of the north, while the Mezzogiorno as a whole, and, in particular, the region of influence of the Banco di Napoli, faced neglect and lack of investment. This shift in economic focus has further contributed to the disparities between the two areas of the nation.

So the game of the three cards was established as one of the pillars of the new nation.

Gaming the system – Third blow

This approach is a well-established tradition in Italian politics starting at the inception of the nation 163 years ago.

The law allowed the bank to have paper money in circulation in a ratio of 1 to 3 with the precious metal held, but, hear! the Turin bank, protected by the inconvertibility of its notes, could also expand, as it did, its circulation well beyond this limit. At some point, however, the old liquidity problems started again, and this time they seemed really serious. Towards the end of the 1890s, one of the institutes through which the National Bank granted credit to entrepreneurs, Banco di Discount e Sete, was almost bankrupt and its bankruptcy would certainly have dragged the lead bank, also given the generally difficult situation, in which the system was at that time. In 1890, therefore, the government had to intervene and it did so by ordering the Banco di Napoli to guarantee payment of the debts of the Turin bank.

The directors of the Banco di Napoli logically rejected the government’s request, aware, however, of the consequences that their refusal would have entailed. As it was easy to predict, in fact, they were removed from office and replaced by a commissioner. The first act of the government-appointed executive officer, obviously, was in favor of Banco di Discount and Sete, which was thus saved. The commissioner ended in 1893 and the administration of the Banco di Napoli was entrusted to the lawyer and deputy Enrico Martuscelli, former director of the Court of Auditors and trusted man of the government. Thus, the big bank finally ceased to be a problem for the northern business power of the time and that was also the moment in which the dream of the southern bourgeoisie of being able to manage their own economic destiny ended forever.

Conclusions

The finance minister, Antonio Scialoja (Neapolitan among other things), in the discussion in Parliament that followed the report about the fiat tender abuses, responded to the criticisms by admitting that it was a vulgar truth that the Banco di Napoli was being sacrificed, but that this was a sad need. The reality is that for the new rulers, the National Bank (Turin) had to be saved at all costs (this was the only, unmentionable, need), because it was the reference institution of the northern business group that held power at that time in the former kingdom of Sardinia and in fact, it was certainly no coincidence that the man at its head, Carlo Bombrini, was also the administrator of Ansaldo, the main Piedmontese company. Among other things, the advisers of the National Bank, as a sign of gratitude towards their director who had led the institution out of the crisis, decreed the cancellation of the credit of 16.5 million granted to the metalworking company.

One thing that might be overlooked is the fact that the above points were all based on rampant privatization run by northern profiteers who were either part of the government or intertwined with the government. In English, it is called “crony capitalism”: an economic system characterized by close and mutually beneficial relationships between entrepreneurs and government officials. The picture below shows this web on connections applicable to Mr. Bombrini, one of the most powerful men of the newly born nation. Among other. he said: “Southerners must no longer be able to be entrepreneurs“. A sentiment supported by many in the northern ruling class that set the stage for cultural bias and discrimination against the southern part of Italy as if it were not part of the same nation. So defeating the ideal, at least on paper, of one nation under God, indivisible, with liberty and justice for all.
Moreover, the seeds of fascism were sown which “will officially germinate” some sixty years later.

The three-card game continues

If you think it’s over after almost two centuries, think again. The events described below took place in the 1990s. The first effect of the Northern League, a party whose only “philosophy” is xenophobia and mainly discrimination and racism against Southerners, was the decision to cease the Extraordinary Intervention for the South, as well as the unilateral, criminal, fraudulent choice of the government to no longer pay the state contributions approved or being disbursed on business investments underway in the South. This led to the crisis of the Banco di Napoli (and of all related industries) which largely, as always done, anticipated them on behalf of the Agenzia del Mezzogiorno (formerly Casmez) and the competent Ministry.
The state caused a hole for the Neapolitan Institute of more than 10,000 billion lire. At the time, no one raised any objections about this matter; on the contrary, the opportunity was taken, following a criminal campaign of misinformation on the quality of Neapolitan management, to liquidate the Bank to the advantage of Banca National del Lavoro (BNL), a northern institution which was on the verge of bankruptcy, what a surprise!!

This is because BNL was the protagonist of the scandalous story of Atlanta (actors were high-level members of the Italian government) but politically protected (in particular by the PCI) and under the wing of the Bank of Italy (one of the managers involved in the aforementioned scandal was a son of the president at the time of the Italian republic).

See also the declassified US document: Repercussions of the BNL-Atalanta scandal.

Here came the northern vultures which followed the same tried-and-true script of their forebears.

Then the banks of the North took over that is Bank San Paolo, then a small and modest entity, and Bank Intesa. To them, almost the entire Southern financial system was handed over, with the purchase of what remained of the Bank of Naples.

Long, complex, and above all disgustingly disgusting history, of which today especially the Mezzogiorno suffers serious consequences.

Immediately afterwards, the process of deindustrialization of the South was started and Title V of the Constitution was modified. At the same time, the downward phase of the national GDP manifested itself.
The Title V of the Italian Constitution is primarily concerned with the organization of the Italian Republic and the distribution of powers between the central government and regional entities, including regions and autonomous provinces. It establishes the principles of regional autonomy and decentralization within Italy. However, the effectiveness of these reforms and their impact on addressing the economic disparities between northern and southern Italy has been a subject of ongoing debate. The Mezzogiorno region has faced long-standing challenges related to unemployment, poverty, and infrastructure development, and some argue that reforms to Title V have not been sufficient to fully address these issues.

Recovery of credits

The liquidation of the Bank of Naples, despite what was claimed, closed after 20 years of management and concluded with the recovery, a unique case, of 92% of the credits, proof of the quality of those credits, which were classified as uncollectible. At the end of the process, a treasure trove of profits amounting to 500 million euros was accumulated, which, ironically, were used by the Renzi government for the first refinancing of Monte dei Paschi do Siena (this time a Tuscan bank, Mr. Renzi’s region).

References

Last updated on September 14, 2023