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 gravely damaged Italian banks.
The governor of the Banca Romana at the time of the scandal, Bernardo Tanlongo, was peculiar man; a semi-literate with a genius for accounts and finance. "He was not a womanizer, he never played, he is the antithesis of all elegance, his frugality resembles avarice," was how the Corriere della Sera once described him. 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 Vatican officials. He remained at his post in the Banca Romana after the unification of Italy and was promoted governor in 1881. He had a ramarkable ability to secure friendships and protections through corruption and loans to cover up secrets.
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 bail out other banks, in order to avoid a major disaster, and became riskily mixed up in the crisis. They were allowed to issue surplus bank notes in excess of their reserves and legal limits in an attempt to steer clear of economic recession.
In June 1889 inspections 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. One of the government reports concluded:
"At the Banca Romana the accounting system is defective, the creation of bank notes is abnormal, their issuing is excessive and partly camouflaged, the arrangement of the general reserve fund is confused, the store of notes for circulation and withdrawal is inadequately protected, and further illegitimate and illegal issues must be expected."
Then Prime Minister Francesco Crispi and his Treasury Minister Giovanni Giolitti knew of the 1889 government inspection report, but feared that exposure might undermine public confidence and suppressed the report. In addition, they also wanted to avoid that it became known that the Banca Romana, like other banks, had handed out substantial loans to politicians (including themselves), often without interest. This was a habitual way to finance election expenses in return for favours. 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 cope with the revelations and the political turmoil which any serious effort at banking reform was bound to trigger.
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 close friendship of Giolitti's Treasury Minister, Bernardino Grimaldi, with Tanlongo, and the introduction of a bill – endorsed by Giolitti and then withdrawn – aimed at providing the existing banks the right to issue currency for another six years, increased suspicion of wrongdoing.
The expert commission 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, the bank's director Cesare Lazzaroni, and several subordinates were arrested but they were acquitted by the Court on July 15, 1894. Tanlongo accused Giolitti of receiving money through the Director General of the Treasury Carlo Cantoni, Agriculture Minister Pietro Lacava, and Grimaldi.
New banking law and Giolitti's fall
The scandal prompted a new investigation 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. The new law also provided 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 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.
Increasing the crisis, the Giolitti and the Crispi-Tanlongo camp leaked documents to the detriment of both politicians. 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. On December 11, 1893, the package – known as the "Giolitti envelope" – 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; officially to 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 about bribes and cover-ups had discredited the institutions and the reputation of politicians. The prestige of both Crispi and Giolitti was tarnished substantially 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.
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