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Does Economic Theory Matter in Shaping Banking Regulation? A Case-study of Italy (1861-1936)

Listed author(s):
  • Gigliobianco Alfredo

    (Banca d'Italia)

  • Giordano Claire

    (Banca d'Italia)

We provide an assessment of the role of economic theory in orienting Italy’s banking legislation over eight decades. From the unification of the country (1861) to the introduction of the 1936 Banking Act, five regulatory regimes are mapped out. Whilst market discipline and self-regulation arguments characterized the first sub-period (1861-1892), the first biting issuing-bank regulation, which inaugurated the second regime (1893-1906), was a political compromise that ignored economists’ requests of a return to convertibility. The third sub-period (1907-1925) was punctuated by two banking crises: the first (1907) vindicated economists who had stressed the need of a LLR, but did not lead to any crisis-prevention regulation; the second (1921-23) confirmed – to no avail – the dangers congenital to bank-industry ties, pinpointed by some members of the profession. The following sub-period (1926-1930) was inaugurated by the first commercial bank regulation (1926) and responded to the economists’ call for restricting bank competition. The 1936 regulation, which marked the onset of the approximately five-decade long fifth regime, matured in a vacuum of economic debate.Financial crises were an important trigger in all the discussed regulatory episodes to which many players, amongst which economists, contributed with varying weights and roles according to the circumstances. Players’ public and private motivations towards regulation were relevant drivers. The existing political regime is not found to have been a discriminating factor in determining the influence economic theory had on bank legislation. More important was instead the degree of authority and legitimacy that economists as a professional category displayed at the time of reforming the regulation. Finally, the desirability of economic theory actually percolating into banking laws is discussed, although the historical evidence on the matter is not clear-cut.

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Article provided by De Gruyter in its journal Accounting, Economics, and Law.

Volume (Year): 2 (2012)
Issue (Month): 1 (September)
Pages: 1-78

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Handle: RePEc:bpj:aelcon:v:2:y:2012:i:1:n:5
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  1. Marco Pagano & Paolo Volpin, 2001. "The Political Economy of Finance," Oxford Review of Economic Policy, Oxford University Press, vol. 17(4), pages 502-519.
  2. Gigliobianco Alfredo & Giordano Claire, 2012. "Does Economic Theory Matter in Shaping Banking Regulation? A Case-study of Italy (1861-1936)," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 2(1), pages 1-78, September.
  3. Frederic S. Mishkin, 2001. "Prudential Supervision: What Works and What Doesn't," NBER Books, National Bureau of Economic Research, Inc, number mish01-1.
  4. Hugh Rockoff, 2010. "Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking," Departmental Working Papers 201004, Rutgers University, Department of Economics.
  5. Bernstein, Michael A., 1990. "American Economic Expertise from the Great War to the Cold War: Some Initial Observations," The Journal of Economic History, Cambridge University Press, vol. 50(02), pages 407-416, June.
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