The Banks

Damiano Bruno Silipo In the 1990s the Italian banking system underwent profound normative, institutional and structural changes. The Consolidated Law on Banking (1993) and that on Finance (1998) instituted the legal framework for a far-reaching overhaul of the Italian banking and ?nancial system: signi?cant relaxation of entry barriers, the liberalization of branching, the privatization of the Italian banks, and a massive process of mergers and acquisitions. Following the Bank of Italy’s liberalization of branching in 1990, in 10 years the number of bank branches increased by 70% in Italy, while in the rest of Europe it declined. Over the decade the average number of banks doing business in a province rose from 27 to 31, while a wave of mergers (324 operations) and acquisitions (137) revolutionized the Italian banking industry, reducing the overall number of Italian banks by 30%. To a signi?cant extent this concentration represented take-overs of troubled Southern banks by Central and Northern ones. As a result of these developments (plus a rise in banking productivity and a fall in costs), the spread between short-term lending and deposit rates fell from 7 percentage points in 1990 to 4 points in 1999. And despite an increase in concentration in a number of local credit markets, the interest-rate differential between the locally dominant and other banks generally narrowed.

Analyse: Banque cantonale vaudoise: p. 1072-1078.

Development-oriented equity investment, undertaken in the context of World Bank projects, can assist in promoting sound banking systems, especially through its positive impact on bank governance. This was the experience of Swedfund Financial Markets that made equity investment in banks in the Baltic republics of Estonia, Latvia, and Lithuania.

This book examines the effect of banking on the real economy and society, focusing on banking supervision as the decisive factor in steering banking activities and determining the social outcome of the game of finance. Banking is like a cardiovascular system for our society. If it functions correctly, it allows the economy to operate smoothly. On the other hand, if it malfunctions it becomes a doomsday device. This creates an asymmetry of risks – the asymmetry between the potential dire consequences and the modest rewards of accepting those risks. Banking was one of the critical technological factors enabling the transition from the middle ages and the creation of modern society. However, while today it contributes little to economic growth, its malfunction has a profound and lasting adverse impact. The book explains why, how and what. Why is it important to keep tight supervision of the banks? How can banking supervision improve stability, not only of the financial system but also of the whole human society? What went wrong with the regulation in the past?