Banca di Sconto – State Railway Material – Circulation – Clearings – Bank of Italy – Security and Commodity Prices

«The Economist», 13 maggio 1922, pp. 905-906

Turin, April 30

The affairs of the Banca Italiana di Sconto are nearing the end. A decree of the Rome Civil Tribunal has given consent to a plan, which gives creditors 58 and 65 per cent, of their credits at various stated dates before December 31, 1923. On the ashes of the “Sconto” will arise a new Banca Nazionale di Credito, which will be, however, primarily a concern charged with the winding-up of the parent.

The Government has laid on the table of the Chamber a Bill authorising State railways to order 1,750 millions lire worth of railway materials in the next five years. No objection can be raised against the principle of preparing a plan of railway reconstruction. But rumour is current that the 1,750 millions lire order will be exclusively given to the Ilva concern, where work is scarce and there are fears of increasing unemployment. It is also stated that the Government will renounce several hundred millions of excess profits tax due from “Ansaldo”, for the same purpose of preventing the closing up of their shops. The peril is that, if these rumours prove true, there will be a scramble on the part of manufacturers and traders to obtain similar favours.

The most important event of the month, from the point of view of economic students, has been the issue of the annual report of Signor Stringher to the shareholders of the Banca d’ltalia. He gives the following figures of circulation of the three banks of issue and of the State. (See table at p. 245).

The figures testify to a laudable effort to keep constant the amount of total issues. The increase at December 31, 1921, was obviously due to fears of panic consequent on the closing up of Banca Italiana di Sconto, but as nothing happened notes have come back to the issuing banks. With the

progressive liquidation of State wheat, coffee, meat, and other enterprises the issues for account of the State are diminishing, with a corresponding increase in the commercial circulation. Clearings have continued to increase in 1921 as against preceding years:

The statistics relate to the Clearing Houses of Genoa, Milan, Rome, and Florence. For 1921 the figures for Trieste are added. However, the total Trieste figure is only 9,861.8 millions.

The operations of the Bank of Italy are also increasing, as will be seen below:

As paper inflation has not increased since June 30, 1920, the extraordinary increases of discounts and advances in the last two years are startling. No increase in the effective activities of the banks can justify the sudden jump. The process is evidently not one of healthy growth, but of a transference to the shoulders of the Bank of Italy of the task of financing industrial concerns. Banks of issue, instead of being bankers’ bankers, are transformed into ordinary bankers, in direct touch with traders and manufacturers. This position, although it cannot be called perilous, claims the closest attention.

In the meantime, profits of the issue banks are increasing. With a paid capital of 180 millions lire and a reserve of 60 millions, the gross profits of the Bank of Italy reached in 1921 the huge sum of 500.4 millions lire, against 394.9 in 1920. Of this sum 15 millions were paid in “ordinary” taxes, 55 millions to funds for risks and amortisations, and 106.2 millions to various administrative and other expenses. The distribution of the net profits in recent years is explained in the following table:

Most of the money paid to the State Exchequer is a windfall of which it would be unwise to prophesy the repetition. Moreover, banks of issue are highly complaining that the State is absorbing all the gross profits of the huge increase of discounts, whereas the unexpired risks pertaining to the same discounts are left on the shoulders of the shareholders, whose dividends have risen only slightly notwithstanding the great depreciation of the paper money in which dividends are paid. In a different degree, the same complaint is heard from all joint stock companies in Italy. Dividends have risen little or nothing since 1914, and almost the whole increase of profits is going into the State Exchequer. This goes a long way to explain why in Italy there are no traces of the booms in shares which are characteristic of periods of paper depreciation in Germany. A general index number for securities which compares present with pre-war prices is not avail able. But Professor Bachi publishes monthly a number index for share prices, where 100 is the price for December, 1918:

In Italy the present level of security prices is lower than in 1914, notwithstanding the depreciation of paper money. The slump is the most sensible in iron and steel (a decrease of 86.05 per cent, on the December, 1918, level), engineering, navigation, motor-cars, railways.

The motor-car industry is greatly hampered by the dwindling of the demand for high-priced motor-cars in the United States and by high duties in most foreign States. Bachi’s commodity index number (based upon the average price for 1920=100) shows that the decrease of prices has been continuous for the last six months:

Whereas the class index numbers are given on the basis 1920, the general index number is given also on the basis of 1901-5. There is a 10 per cent, decline in the half-year, but we are yet on a level six to sevenfold higher than in 1901-5.