Banking in Italy, a Strategic Response to Disintermediation in the Mid-80's

MANAGING AMIDST TENSIONS AND CONFLICTS IN A GLOBAL ECONOMY, L.L. Waters and Thomas P. Hustad eds., Indiana University Press, Bloomington, Ind. pp. 69-75, 1984.

Posted: 26 Apr 2012

See all articles by Arnaldo Mauri

Arnaldo Mauri

Università Degli Studi di Milano

Remo Arduini

affiliation not provided to SSRN

Date Written: April 26, 2012

Abstract

The paper deals with the adverse conditions faced by Italian banks after the first oil shock. The scene at that time was rapidly changing . The sudden increase of the cost of energy in a country almost fully dependent for its sources from abroad, caused a strong inflation and released a whole set of events and phenomena which interacted amongst themselves: hyperinflation, increase of wages, uncontainable upward trend in public expenditure, fiscal squeeze. Monetary authorities, pursuing a policy of containing inflation, pushed primary for credit rationing rather tan on interest rates. There was, therefore, a tightening of credit controls, with higher reserve requirements and liquidity ratios, loan ceilings, portfolio constraints, lending directives and disguised taxation. Increases in interest rates caused sharp drops in securities prices. Hence bank portfolios suffered huge losses. A further unfavourable outcome of the second half of the ‘70s was disintermediation. Households, deceived by negative real interest rates on bank deposits, moved towards financial instruments issued by non-banking institutions. With unusual timeliness the State, committed to supply funds to big public enterprises, took advantage of this opportunity and issued large amounts of tax free bonds and bills with yields higher than inflation rates. The banks reacted becoming dealers in Treasury securities and developing a profitable over the counter market. The strategic response of banks to the unfavourable change of the environment were directed to the improvements in services to customers and based on innovations adopted in the following areas: automation, internal organization and procedures, new financial instruments and institutions. The new financial instruments, following a deregulation trend were issued also with the aim of avoiding the ceilings system set up in the context of a national credit rationing policy. Institutional innovations were adopted in order to provide specialised services which could not be offered directly by commercial banks; therefore subsidiary companies were created dedicated to activities like factoring, leasing, merchant banking, etc.

Keywords: Italian banking, banking strategy, disintermediation

JEL Classification: G20, G21

Suggested Citation

Mauri, Arnaldo and Arduini, Remo, Banking in Italy, a Strategic Response to Disintermediation in the Mid-80's (April 26, 2012). MANAGING AMIDST TENSIONS AND CONFLICTS IN A GLOBAL ECONOMY, L.L. Waters and Thomas P. Hustad eds., Indiana University Press, Bloomington, Ind. pp. 69-75, 1984.. Available at SSRN: https://ssrn.com/abstract=2045467

Arnaldo Mauri (Contact Author)

Università Degli Studi di Milano ( email )

Milan, 20122
Italy

Remo Arduini

affiliation not provided to SSRN ( email )

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