Ownership Structure and Control, Regulation and Performance in Italian Banking. A Long-term Perspective

Before the 1930s crisis, two main patterns of governance characterised Italian financial institutions. One was adopted by privately owned banks, the other by (semi-) public institutions. Different phases of economic development have been marked by the prevalence of one or the other of those corporate governance models. Until the 1930s, only about a third of the credit market was characterised by a ‘capitalistic model’ of governance. Between 1936-38 and the early 1990s, the whole system was ‘publicly dominated’. Afterwards, a wave of privatisation, financial liberalisation and the progressive opening of international markets led to radical changes in ownership structures and control of financial intermediaries. Main banks were sold back to private owners; coop-banks modified their charters and became commercial banks; savings banks, too, transformed themselves into commercial banks, and separated bank corporations from their ownership, which were retained by charities or foundations. During phases of growing competition, regulation was relaxed or less effective than before: in those transition periods, competition and uncertainty shuffled banks’ relative ranking, dispersing their profits, solvability, and liquidity. Thus, though raising bad loans and default-fuelled M&As, the stickiness of ‘non-capitalistic models’ of governance hindered system’s de-segmentation, as happened in the 1920s. These failures left private banks at the mercy of managers, while publicly owned ones were plundered by looters, eventually calling for the new banking regulation of 1936. Different models of corporate governance might affect banking (and economic) performance in different ways. What seems to emerge from the Italian case is that the persistence of strong dichotomies in ownership structures and rules of governance, coupled with banking competition, often produced an incoherent and fuzzy institutional framework, which resulted in distorted forms of control, eventually damaging stakeholders. In fact, though regulation introduced after the crises of 1907 and 1926 fostered banks’ competition, it failed to implement proper markets for corporate control and allowed ‘non-capitalistic’ governance patters to persist, thus preventing restructuring processes. The solution adopted in 1936 made ‘external rules’ (banking regulation) coherent with ‘internal’ ones (governance patterns) by extending ‘non-capitalistic models’ of governance to almost the whole system and forbidding competition among intermediaries. In this sense, better performing periods, in terms of banks’ overall stability and allocative ability, were those in which banking roles and rules were well defined and respected, and regulation unique and viable