EconPapers    
Economics at your fingertips  
 

Did governance fail universal banks? Moral hazard, risk taking, and banking crises in interwar Italy1

Stefano Battilossi ()

Economic History Review, 2009, vol. 62, issue s1, 101-134

Abstract: In interwar Italy, at least six major episodes of banking crises required the intervention of monetary authorities to bail out, restructure, or liquidate distressed intermediaries. The five large universal banks rescued in the systemic crisis of 1930–1 jointly accounted for one‐third of the total assets of the banking system. What made Italian leading banks so prone to crises? This article suggests that their fragility was ultimately caused by governance failures, both public and private, that enhanced excess risk‐taking. Empirical evidence is consistent with theoretical insights according to which the potential for moral hazard and conflict of interest, endemic in universal banking, can be magnified when banks enter into long‐run relationships with firms and base their growth strategy on the pursuance of monopolistic rents. Interwar Italy emerges as a case in which an insider system devoid of the disciplinary devices provided by sound governance institutions created perverse incentives and weakened the resilience of the banking system to adverse macroeconomic shocks.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed

Downloads: (external link)
https://doi.org/10.1111/j.1468-0289.2008.00442.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ehsrev:v:62:y:2009:i:s1:p:101-134

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0117

Access Statistics for this article

Economic History Review is currently edited by Stephen Broadberry

More articles in Economic History Review from Economic History Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2023-06-15
Handle: RePEc:bla:ehsrev:v:62:y:2009:i:s1:p:101-134