The official site of Italy's central bank

The Bank of Italy from its inception to the 1936 Banking Law

The Depression and the 1936 Banking Law

After Stringher's death in 1930 the Governorship passed to Vincenzo Azzolini, who arrived from the Treasury.

At the depth of the Great Depression, the devaluation of sterling (in September 1931) and most other currencies was tantamount to a further revaluation of the lira. The deflationary effect of Italian policy was accentuated, with severe repercussions on economic activity and the financial system. The State and the central bank saved the major commercial banks from collapse, their assets swollen with ever more devalued equity holdings. The Bank of Italy found itself with severely illiquid assets, and was thus unable to conduct operations. The response was first the creation of Istituto Mobiliare Italiano (IMI) to provide medium and long-term financing and then the Institute for Industrial Reconstruction (Istituto per la Ricostruzione Industriale - IRI), which purchased equity holdings of the ailing banks and took a controlling stake in the banks themselves. In the mid-1930s the tensions that would lead to the World War II were foreshadowed in the monetary and currency sphere with the de facto termination of the convertibility of the lira and in the suspension of the gold reserve requirement (which was never to be reinstated).

In the context of preparations for war (the invasion of Ethiopia started in 1935) and under IRI, the Banking Law was drafted. The first part of the Law, which is still in force, defined the Bank of Italy as "a public law institution" and entrusted it definitively with the function of monetary issue (no longer just a concession); individual shareholdings were expropriated and equity was reserved to financial institutions of public relevance; the Bank was prohibited from discounting bills itself to non-banks, underscoring its function as banker to banks. A second part of the law (repealed almost completely in 1993) concerned credit and financial supervision, totally revamping the credit system via a separation between banking and industry and between short- and long-term credit; it determined that banking was an activity of public interest; it concentrated supervision in the Inspectorate for the defence of savings and the exercise of credit (a newly created state body), chaired by the Governor and using resources and personnel of the Bank of Italy, but directed by a ministerial committee chaired by the Prime Minister.

Aware of the new developments in economics and the challenge posed by a world in the throes of violent change, Governor Azzolini initiated the creation of a modern research service, taking on professional economists.

At the end of 1936 the long-awaited devaluation of the lira stimulated economic recovery and improved the balance of payments. At the same time, by a simple ministerial decree, all limits on State borrowing from the Central Bank were abolished. The autonomy of the Bank was at its nadir.