Banca Romana scandal
Banca Romana scandal trial
|Participants||The Banca Romana had loaned large sums to property developers but was left with huge liabilities when the real estate bubble collapsed in 1887.|
|Outcome||The scandal prompted a new banking law, tarnished the prestige of the Prime Ministers Francesco Crispi and Giovanni Giolitti and prompted the collapse of the latter's government in November 1893.|
The Banca Romana scandal surfaced in January 1893 in Italy over the bankruptcy of the Banca Romana, one of the six national banks authorised at the time to issue currency. The scandal was the first of many Italian corruption scandals, and, like the others, it discredited the whole political system. The crisis prompted a new banking law, tarnished the prestige of the Prime Ministers Francesco Crispi and Giovanni Giolitti and prompted the collapse of the latter's government in November 1893.
The Banca Romana was founded by French and Belgian investors in 1835. In 1851 the bank became the official bank of the Papal State and in 1874 it was made one of the six national banks authorised to issue currency.
Due to rising inflation and easy credit, the Banca Romana and the five other issue banks (banks that were allowed to issue banknotes), had steadily increased their note circulation. In 1887 five of the issue banks had exceeded their legal limit, a fact well known to the government and banking and financial circles. However, restricting credit in a period of speculative construction boom was considered politically impossible.
Since the late 1880s, the Italian economy had been sliding into a deep recession. New tariffs had been introduced in 1887 on agricultural and industrial goods, followed by a trade war with France, which badly damaged Italian commerce. Many farmers, especially in southern Italy suffered severely, which eventually led to the uprising of the Fasci Siciliani. Additionally the collapse of a speculative boom based on a substantial urban rebuilding programme seriously damaged Italian banks.
The governor of the bank at the time of the scandal, Bernardo Tanlongo, was peculiar man; a semi-literate with a genius for accounts and finance. A former farm hand and former spy during the short-lived Roman Republic in 1849, he made his career in the bank in the Papal State, providing illicit entertainment to government officials. He remained at his post in the Banca Romana after the entry into the capital from Piedmont and was promoted governor in 1881.
In 1889 the boom burst. Three Turin banks, heavily involved in building speculation in Rome, suspended payments. The issue banks were persuaded by the government to intervene, in order to avert a major disaster, and became dangerously involved in the crisis. In June 1889 a careful inspection by a governmental commission of the Banca Romana, revealed serious irregularities in its administration and accounts; 91 percent of the assets of the bank were illiquid. Moreover, the bank’s directors had committed a criminal offence by permitting an additional number of banknotes with double numbering to be printed.
The Banca Romana had loaned large sums to property developers but was left with huge liabilities when the real estate bubble collapsed in 1887. Then Prime Minister Francesco Crispi and his Treasury Minister Giovanni Giolitti knew of the 1889 government inspection report, but feared that publicity might undermine public confidence and suppressed the report. Over the next three years there was much talk of the need for a single issue bank and for a reduction in the note circulation. But neither Crispi nor his successors, Antonio Di Rudinì and Luigi Luzzatti, had the courage to face the revelations and political storms which any serious attempt at banking reform was bound to precipitate.
The scandal erupts
Giolitti, who was prime minister from May 1892 to November 1893, tried to get the governor of Banca Romana, Tanlongo, appointed as senator which would have given him immunity from prosecution. Before Giolitti could appoint the former bank governor, the report was leaked to republican deputies Napoleone Colajanni and Gavazzi who divulged its contents to the Parliament at the end of 1892. On December 20, 1892, Colajanni read out long extracts in Parliament and Giolitti was forced to appoint an expert commission to investigate the issue banks.
The report, published on January 18, 1893, confirmed the serious state of affairs in the Banca Romana: a deficiency of cash, cooked accounts, a note circulation of 135 million lire instead of the 75 million permitted by law, a great quantity of bad debts due to speculation in building, and 40 million lire in a duplicated series of notes which had been printed in Britain but not issued owing to the honesty of minor officials of the bank. Politicians had received money to finance their election expenses and to run or bribe newspapers. The next day, Tanlongo and several of his subordinates were arrested but they were acquitted by the Court on July 15, 1894.
New banking law and Giolitti's fall
The scandal prompted a new examination and speeded up the legislative process towards a new banking law. Giolitti was well fitted to deal with the technical side of the problem, and he acted with energy, albeit belatedly. The Bank Act of August 1893 liquidated the Banca Romana and reformed the whole system of note issue, restricting the privilege to the new Banca d'Italia – mandated to liquidate the Banca Romana – and to the Banco di Napoli and the Banco di Sicilia, and providing for stricter state control.
The main priority of the reform was to rapidly solve the financial problems of the Banca Romana, as well as to cover up the scandal which involved the political class, rather than to design a new national banking system. Regional interests were still strong; hence the compromise of plurality of note issuance. The reform did not immediately restore confidence nor achieved to establish a single bank of issue, envisaged by Finance Minister Sidney Sonnino, it was nevertheless a sound reform.
Politically, however, Giolitti did not survive the scandal. He had been Finance Minister in the government that had suppressed the original 1889 report. As Prime Minister he had borrowed from the Banca Romana for governmental purposes in August 1892 and had nominated the bank’s governor, Tanlongo, to the senate and had resisted a parliamentary enquiry, encouraging suspicions that he had something to hide. Tanlongo and the Banca Romana’s tried to defame Giolitti calculating that a change of government would result in the release of the defendants. On November 23, 1893, the report of the Commission that has investigated the bank scandals was released and read in Parliament. Many politicians were implicated but Giolitti was targeted in particular. The reading led to violent disorder in Parliament which continued on the street when the lights were turned of at 10.00 PM. Giolitti had to resign on November 24, 1893, as a result of the Banca Romana affair.
The acquittal of Bernardo Tanlongo and the other Banca Romana defendants in July 1894 freed Giolitti’s successor as Prime Minister, Francesco Crispi, to engage in open warfare against Giolitti. Tanlongo and his co-defendants were acquitted on the grounds that the “major criminals are elsewhere” – an obvious reference to Giolitti (and a striking contrast to the sentences passed on the leaders of the Fasci Siciliani). In September 1894 Crispi subsequently ordered the prosecution of police officials for abstracting documents from Tanlongo’s house that allegedly incriminated Giolitti.
Giolitti now had an opportunity to counter-attack, releasing a package of documents, compromising Crispi with evidence that he had concealed financial transactions and debts contracted by Crispi, his family and friends with the Banca Romana from the parliamentary inquiry. In December the package was handed to the President of the Chamber of Deputies. A committee of five was appointed to examine the new evidence, including Felice Cavallotti, one of Crispi’s main allies. However, confronted with the new facts he realised that Giolitti had been misjudged.
After the publication of the committee’s report on December 15, 1894, Crispi prorogated the Chamber which compelled Giolitti to leave the country and visit his daughter in Berlin. Despite a resounding victory of Crispi at the elections in May 1895, the scandal would backfire against him and Giolitti regained much of his prestige after the political debate in December 1895. The scandal was now hurriedly buried after nearly three years. Most of the shortcomings had been political negligence rather than criminal, but the uproar had damaged the reputation of politicians tarnishing the prestige of both Crispi and Giolitti and favoured the so-called Extreme Left headed by Cavallotti.
In popular culture
In 1977 the Italian state television channel Rete Due (now Rai 2) broadcast a mini series on the scandal in three parts. On January 17-18, 2010, Rai Uno broadcast a two-part mini series directed by Stefano Reali.
- Italy Has Her Scandal; Ex-Premier Crispi Said To Be Involved, The New York Times, January 27, 1893
- Sarti, Italy: a reference guide from the Renaissance to the present, pp. 135-36
- Seton-Watson, Italy from liberalism to fascism, pp. 154-56
- Duggan, The Force of Destiny, p. 340
- Davis, John A., Socialism and the Working Classes in Italy Before 1914 , in Geary, Dick (ed.) (1989), Labour and Socialist Movements in Europe Before 1914, Berg, ISBN 0-85496-200-X, p. 188
- (Italian) Tanlongo, il maestro di Calvi e Sindona, Corriere della Sera, April 26, 1993
- Pohl & Freitag, Handbook on the history of European banks, p. 564
- Alfredo Gigliobianco and Claire Giordano, Economic Theory and Banking Regulation: The Italian Case (1861-1930s), Quaderni di Storia Economica (Economic History Working Papers), Nr. 5, November 2010
- Tanlongo Not Guilty; Jury Acquits Him of Fraud in Managing the Banca Romana, The New York Times, July 29, 1894
- (Italian) Legge n. 449 del 10 agosto 1893
- The Italian Bank Scandal, The New York Times, November 24, 1893
- Cabinet Forced To Resign; Italian Ministers Called "Thieves" by the People, The New York Times, November 25, 1893
- Seton-Watson, Italy from liberalism to fascism, pp. 172-74
- Accusations Against Crispi, The New York Times, June 9, 1895
- Accusing Signor Crispi; The Banca Romana Chest of Documents a Pandora's Box, The New York Times, December 16, 1894
- Lo scandalo della Banca Romana, Albatross Entertainment (accessed January 15, 2012)
- Duggan, Christopher (2008). The Force of Destiny: A History of Italy Since 1796, Houghton Mifflin Harcourt, ISBN 0-618-35367-4
- Pohl, Manfred & Sabine Freitag (European Association for Banking History) (1994). Handbook on the history of European banks, Aldershot: Edward Elgar Publishing, ISBN 1-85278-919-0
- Sarti, Roland (2004). Italy: a reference guide from the Renaissance to the present, New York: Facts on File Inc., ISBN 0-81607-474-7
- Seton-Watson, Christopher (1967). Italy from liberalism to fascism, 1870-1925, New York: Taylor & Francis, 1967 ISBN 0-416-18940-7
- (Italian) Commissione d'inchiesta sulle banche, Archivio storico della Camera dei deputati