Public Banking in Early Modern Europe and the Origins of Milan's Banco di S. Ambrogio (1591-3)
Banco di Rialto, Venice, Gabriele Bella, oil on canvas, c.1760s-70s
The appearance of public banks between the fifteenth and seventeenth centuries was deemed a crucial event in European History by the eminent French Mediterranean historian Fernand Braudel. It effectively ushered in a new dimension in the relationship between public authorities and the financial system. By and large, public banks were licensed by a public authority and often subject to its supervision as well as ownership and management through a wide range of juridical and organizational arrangements. They were above all targeted solutions or precautionary measures against financial problems ranging from the burden of public debt to debasement, lack of specie or market failures caused by the recurring bankruptcies of private bankers. Each issue led to a particular objective being identified at the act of creation, ranging from the enhancement of commerce to more specific ones such as safety of payments and redemption of annuities, all grouped under the formula – more or less rhetorical – of ‘common good’. Such objectives were then to be achieved through the performance of one or more of three essential functions stemming from deposit- and giro-banking. These were the provision of zero- to low-cost public credit through fractional-reserve as relief or complete takeover of public debts, the stabilization of currency through the introduction of a stable currency of account and a progressive monopoly over clearing, and, lastly, the provision of stable cashless payment systems and liquid assets. In addition, they would also provide banking services to local governments. In essence, public banks were meant to ensure what could be called, by an umbrella-term, financial stability, which, in turn, as in recent years been translated into the concept of economic resilience. Some of the longest-lived are the Taula de la Ciutat of Barcelona, which lasted from 1401 to 1865, the Banco di S. Spirito in Rome from 1605 to 1992, and the Bank of England, which has been continuously in operation since 1694. In time, they have been identified – by function, tradition, or institutional development – as the point of origin of central banking.
Yet, early public banks manifested themselves in different and often puzzling forms, which modern scholarship has struggled to reconcile to a single matrix. I shall make here a few examples of highly celebrated banks. When the Banco di Rialto of Venice began operations in 1587, it was technically a private bank operating under public supervision, conditions of monopoly, and the legitimisation provided by the banner of San Marco. Alternatively, the so-called Neapolitan public banks originated from the concession of a privilege to open a banco público to several charitable institution between 1584 and 1600. In the Spanish Empire, this formula identified licensed private local banks, not yet public banks. However, after the disappearance of the private sector in 1603, a linguistic transition from Spanish administrative jargon to early modern Italian vernacular brought these banks to be known as banchi pubblici, and thus, literally, public banks. While instead the famous Wisselbank of Amsterdam was qualified only as städtliche (municipal), the Taula de la Ciutat of Barcelona (1401), which operated in parallel to private banking throughout its history, did not acquire its public character strictly from being a taula municipal – a municipal bank and a department of the city government –, nor from displaying the coat of arms of the city, but from being assegurada (guaranteed), through the wealth of the city. Such technicalities at times confused potential customers, determining low levels of voluntary deposits in the banks’ first years. Yet, they also encompass further the true nature of these banks, namely, being a rationalization of and an alternative to existing private banking practices.
By the end of the sixteenth century, the Mediterranean had already experienced three phases of public banking diffusion, although asymmetrical between the Iberian and Italian peninsulas. While the Taula of Barcelona – founded primarily to provide zero-cost credit to the city through fractional-reserve – operated continuously into the sixteenth century, by the end of the fifteenth century public banking in the Italian peninsula seemed to have been a temporary phenomenon.
Palazzo San Giorgio, Genoa, home to the bank of the same name, 2008. Courtesy of Wikicommons.
The Casa di S. Giorgio in Genoa – a joint-stock consortium of annuities holders that acted as a tax-farming company – had operated a series of banchi since 1408 which allowed transfers on current accounts as well as overdrafts, yet, after 1444, only to debt holders. The solitude of the Taula on the public banking scene at the time was not going unnoticed. In 1491, a Catalan jurist who had studied in Bologna, Florence, and Pisa sent a letter to his friend Paulo Pompilio, a Roman Scholar, which contained a digression in which he described the marvels of the city of Barcelona. Among these, he mentioned the existence of a public bank, which he deemed trustworthy, praising especially the protection given to deposits against any external claim or legal liability. He added that ‘although it is something that should be imitated’, he could not see anything similar operating in Rome or other beautiful cities. A second wave of new public banks – in both the Italian and Iberian peninsulas – came in the second half of the sixteenth century, in parallel to the revanche Méditerranée, the economic recuperation of maritime trade that occurred in the Mediterranean basin as a consequence and a reaction to the shift towards Atlantic trade. However, the appearance of new public banks was not a symptom of economic health. It was instead the expression of with reduced economic opportunities, the inherent fragility of their economic structures or private banking sectors, and various degrees of political, social, and economic instability. In the wake of these struggles, the systemic solutions proposed by public banking was thus pragmatically relevant to the governments, political elites, and merchants of these regions.
Map of Italian states in c.1600, Cambridge University Press
One of these regions was the Duchy of Milan, whose finances were, by the second half of the sixteenth century, in a state of disarray. This political entity, under official Habsburg rule since 1535, by the 1580s had entered a period of stagnation, marked by an agricultural crisis, recurring deficits in the balances of the City and the bankruptcy of four banking firms between 1581 and 1584. The conventional tools to which the general council could resort were essentially two, namely, taxation and debt. The combination of a fiscal apparatus in disarray and a stagnating economy rendered tax increases ineffective, thus it was decided to increase public debt, yet the question was how to do so sustainably. For Giovanni Antonio Zerbi, this was the introduction of a public bank. Born in 1562 in an illustrious yet non-patrician Milanese family, the few records that have survived regarding his early life depict him as a simple citizen, yet particularly devoted to the well-being of the city and expert in commercial matters. He married the daughter of a notable Genoese merchant family, the Di Negro, but the date of the marriage is uncertain. What is known is that he had the opportunity to travel extensively and acquire practical commercial knowledge, before embarking on a travel across the Mediterranean to study existing banking practices, especially public banking. Between 1590 and 1592 he visited Venice, Naples, Palermo, Genoa, and Barcelona (and possibly Valencia) witnessing ‘old practices of different cities of Europe, and of those maritime, which have banchi pubblici which continuously bring great profits’. But what did he actually witness in city after city?
Piazza del Mercato, Naples, during the rebellion (1647-8), led by Tommaso Masaniello, against Spanish Rule. Michelangelo Cerquozzi and Viviano Codazzi, oil on canvas, 1647-8
His first stop was Venice, which, in the aftermath of the Battle of Lepanto (1571), was a commercial and maritime power struggling with a dwindling private banking sector. After the bankruptcy of the last firm, that of Pisani and Tiepolo, in 1584, senator Tommaso Contarini proposed to the Maggior Consiglio the introduction of a one-bank monopolistic system. The Banco di Rialto began operations in 1587, located in a sotoportego, a covered passageway, near the homonymous area which formerly housed local banks. The bank that Zerbi saw appeared by all means a highly regulated private giro-bank in which transactions between current accounts were performed in reliable bank-money, and whose deposits the Senate had pledged never to access. When he arrived in Naples, he witnessed instead a system of private banks acting as public ones. Between 1584 and 1600, seven charitable institutions were granted a license to open a banco público. Of these banks, two were owned by pawnbrokers – the Banco del Monte di Pietà (1584) and Banco del Monte dei Poveri (1600) –, four by hospitals – Banco della Santissima Annunziata (1587), Banco del Popolo (1589, as Incurabili), and Banco S. Eligio (1592) Banco of S. Giacomo e Vittoria (1597) – and, lastly, one by a charity offering shelter to indigent young women – Banco dello Spirito Santo (1591). They had a formal permission to accept deposits, granted by the viceroy, and perform giro-transactions, and they held shares in tax farms. They proved innovative in money creation, for they issued liquid means of payment in the form of the fedi di credito, namely, a paper record of a deposit turned into a negotiable bill of credit. However, not all their operations were sanctioned, and active ones such as overdrafts and loans were tolerated, within limits, for public credit and charitable loans. Thanks to their perceived trustworthiness and a high level of reserves – above 50 percent –, they proved fundamental in ensuring Naples’ resilience, especially at the time of the Plague and the revolt of Masaniello (1648–9) against Spanish rule. Palermo, his third stop, had long been within the traditional sphere of influence of the Crown of Catalonia-Aragon, and it is therefore no surprise that, between 1551 and 1553, adopted and adapted the Catalan taula-model by creating the Tavola. However, as in Venice, it operated as a guaranteed one-bank system, providing a place where ‘everyone can deposit and place any money freely and safely, without doubt or care’, after decades of struggling fortunes of private banking firms. It was a department of the municipal administration and operated as a giro-bank as well as an unregulated lender of last resort. While loans to support public debt and new infrastructures started in 1558, in 1560 the executive council and the Senate had made clear to the Tavola’s governors that there was no plan nor intention of re-payment.
The fourth stop, Genoa, surely brought him into contact with more refined techniques of public credit, namely, the presence of a secondary market of annuities which were, at times of lack of specie, used as fiduciary money. However, when the Casa re-established the banchi after 1568, reprising its fifteenth century roles, contemporary observers such as the French jurist Jean Bodin were most impressed by the strict monetary regulations which involved the rejection of deposits in petty coins, and preference given to Genoese currencies, taken at their legal value. Lastly, before an uncertain stop in Valencia, he visited Barcelona. Since the regency (1551–56) and then reign of Philip II (1556–98), a second wave of establishments of taules municipals in the territories of the Crown of Catalonia-Aragon resulted in no less than eleven new taules being founded. According to Andrea Navagero, a Venetian ambassador and historian who visited the city in 1525, the bank was ‘filled with a great amount of money’. By that year, in fact, it had ceased its traditional role of provider of zero-cost public credit to focus on the provision of a stable cashless payment system, limiting fractional-reserve to one-off contributions authorised by the municipal council, which was then struggling to reduce the burden of public debt accumulated during the Civil War (1462–72). The bank was thus a stabilizing presence within the city’s economic life, and, by 1589, had been granted a stable building next to the chambers of the councils, adorned with expensive furniture and tapestry.
Andrea Navagero (1483 -1529), Librarian of S.Marco,Venice, ambassador of the Venetian Republic to Spain (1516) and to France (1529). Portrayed here on the left with his friend Agostino Beazzano, Raphael, ( Galleria Doria Pamphilj), oil on canvas, c.1516.
By the time he reached Madrid – between late 1591 and early 1592 – he had become persuaded that ‘a man, by nature, is expected to bring any sort of benefit to his Prince and his motherland’. He thus decided to propose to his Prince, king Philip II, a plan to establish a public bank in Madrid ‘in imitation of that of S. Giorgio in Genoa’. Such projects, made by economists, jurists, and reform thinkers known as arbitristas, were already circulating in the Spanish court. The most famous one, that of Peter de Oudegherste, a native of Flanders who had spent time in Italy and Spain and had also observed the practices ‘in Barcelona, Zaragoza, the monte of S. Giorgio in genoa, and the Tabla Redonda de Sicilia’, entailed a profound restructuring of the state’s financial architecture around the introduction of a system of public depositories known as erarios. Entangled within an arm wrestling between the king and the Cortes – the Spanish parliament – that freezed public finances multiple times, this project never succeeded, nor did that of Zerbi. He thus resolved to return to his motherland, Milan, in 1592, where he attempted to propose another solution to different problems.
The Emperor Charles V, Titian, oil on canvas, 1548
By that year, private and public demand for capital was peaking, and the city was descending toward a seemingly unavoidable catastrophe, with debts to private bankers via bills of exchange exceeding 1,000,000 lire, and a turn from commercial investments to rent-seeking by merchants and the upper-tier of the population. A default of the public administration would have thus had major repercussions on the city at large. Zerbi deemed the introduction of a state-controlled public bank as a pragmatic, viable, and immediate alternative to the overreliance on private credit, as well as a guarantee against any disruption in the cashless payment system caused by the insolvency of private banking firms. Unlike Spanish arbitristas, who included public banking practices within a larger restructuring of the state’s financial architecture, Zerbi maintained the core nature of public banking he had witnessed first-hand during his travels – being an alternative and a solution – intact. He proceeded as per a univocal yet unwritten tradition. He presented a proposal, in this case to the Tribunale di Provvisione – the highest administrative office –, pushing for the creation of a Banco di S. Ambrogio, an institution bound to wed Genoese and Venetian techniques. On one hand, it would raise capital through non-remunerated deposits in a section called cartulario – then used to fund the city’s deficit through fractional reserve –, and issue shares (‘multiplici’) of the value of 100 lire each to be used as a source of public credit. On the other, it would function as a banco-giro, thus providing a cashless payments system in which those non-remunerated accounts could be used to make ledger-based transfers. Especially, he stressed how he had learnt the lesson of the ‘benevolent forefathers’ of the Banco di S. Giorgio in Genoa, who aimed to maintenance and increase of its dominion; the second the easiness and safety that it provided to all merchants in the use of money; the third the profit, that enriched them, far bigger, far more lawful, and safe, than what can be gained today […]; fourth the perpetual abundance, which no man could take away; and, lastly, a plethora of many other good things, pleasing not only to God, but to the entire world’ (A. Cova, Il banco di S. Ambrogio nell’economia milanese dei secoli XVII e XVIII (Milan, 1972), p. 24, note 56).
It cannot be ascertained to what extent this insistence on the idea of common good was true to Zerbi’s heart, yet it is clear that any self-serving ambition originated from a coherent reasoning on what would most substantially benefit the Milanese community. What is more, the success of Genoese capital management – which, by the dawn of the seventeenth century, was playing a central role in the financing of the Spanish monarchy through the asientos – and of the Banco di S. Giorgio – quoted by J. Bodin and Machiavelli as paradigm of financial prowess – was theoretically not in question. However, the members of Tribunale did not possess Zerbi’s practical command of the inherent mechanisms of existing public banking practices, thus forcing the Consiglio Generale to appoint a commission in December 1592 to further evaluate the matter. By January, a Venetian dispatch informs that it was well-known that the ‘community of Milan, to rid itself of a costly debt, has thought of establishing a banco pubblico’ (Cova 1972, p. 25, note 58). The optimism of the committee was however countered by the growing preoccupation of local and foreign private banking firms, who, well-aware of the potential threat to their lucrative business, offered a joint one-off zero-cost loan to the municipal government. The latter began to yield under the pressure of the opposition to the project, and this could have very well marked the end of Zerbi’s endeavour, as was often the case between 1580 and 1650, when no less than fifty-seven project for public banks would fail for similar reasons. To break the stalemate, Zerbi resorted to publishing his project in the form of a dialogue between him and his father-in-law Francesco Negro, in which the latter had deliberately come to Milan to seek a thorough explanation of Zerbi’s reasoning and reflections on banking, coinage, and political economy. This Dialogo, printed in 1593, was meant for circulation not only among the government, but across all the population – especially merchants –, in order to gather popular support for the project. Peculiarly, he succeeded in convincing the government, who ordered the establishment of the Banco in 1593, but failed to convince the people, resulting in the inability of the bank to attract large quantities of deposits, as well as investors in shares. As a consequence, he wrote at least two other dialogues in 1597 and 1599 to further try to impose upon the City his vision.
Pilip II of Spain, Titian, oil on canvas, c.1549-1550
At the time of his death in 1601, Zerbi had endowed Milan with an institution that could provide low-cost credit to the city, as well as being a source of low-risk investments for local bankers and entrepreneurs and the backbone of commercial payments. Although the Milanese experience would not prove influential in the overall trajectory of the phenomenon of public banking, Zerbi’s action encompassed a common approach to the issue of public bank creation at the dawn of the seventeenth century, namely, the identification of this type of financial institution as a ready solution. Technical knowledge could be acquired – first-hand, or through the study of printed statutes – and pragmatically blended to meet local needs. Highly celebrated and historically successful public banks such as the Wisselbank of Amsterdam (1609), the Hamburger Bank (1619), the Nürnberger Banco Publico (1621) were established after local councilmen and merchants had identified – through knowledge of the Venetian experience especially – the necessity for a new institution, and after more precise accounts – printed, or testimonies of people expert in such matters – were gathered.
A contemporary depiction of the formal restoration (1868) of imperial rule in Japan under Emperor Meiji
This attitude would survive into the nineteenth century, with a prime example to be found in Meiji Japan. When the isolationist policy known as sakoku was lifted in 1853, the European word ‘bank’ was hardly known throughout the remnants of Tokugawa Japan. After a buffer period in which emperor Meiji effectively suppressed the shogunate system and promoted social and economic reforms, a plethora of Western paraphernalia began being adopted in an attempt to modernize Japan. Beneath the adoption of Western clothing and American guns lied the genuine interest in acquiring technical knowledge from foreign countries in what were considered key sectors, such as naval industries. Among these were also the establishment of the first prototypes of commercial banks around 1869, called kaishas (a linear transliteration of the Spanish word Caixa), allowed to issue paper money. These, however, with one exception, went bankrupt within months. The government of Japan thus realized that it was not sufficient to attract scholars or gather knowledge through printed books, whereas they would need to resort to first-hand field learning. In the following years, several high-level officials were thus sent abroad to study European and American systems. Ultimately, in 1882, the National Bank of Belgium became the model for the Bank of Japan, but with the awareness that, in essence, in the practice of central banking, it was a matter of learning by doing. The same pattern of autoptic acquisition of knowledge and moulding of a model stood at the core of the diffusion of public banking in early modern Europe, and had Giovanni Antonio Zerbi, founder of the Banco di S. Ambrogio in 1593, as its bannerman.
 Braudel, F., Civilization and Capitalism, 15th–18th Centuries. Vol. II. The Wheels of Commerce, (London, 1979), p. 390.
 Vat.lat.2222, 97r-112v.
 Zerbi, G. A., Discorso in forma di dialogo intorno al Banco S. Ambrosio della Città di Milano. Di Gio. Antonio Zerbi Ragionato Generale di detto Banco (Milan, 1599), p. 2–4.
 Archivio di Stato di Palermo, atti, bandi e provviste, 1551-52. Ind. XI, f. 78.
 Henri Hauser (ed.), Jean Bodin, La Vie Chère Au XVIe Siècle. La Response De Jean Bodin à M. De Malestroit, 1568 (Paris, 1932), p. 12.
 Navagero, A., Il viaggio fatto in Spagna et Francia… (1563), f. 3r
 Zerbi, G. A., Discorso in forma di dialogo intorno al Banco S. Ambrosio della Città di Milano. Di Gio. Antonio Zerbi Ragionato Generale di detto Banco (Milan, 1599), p. 2–4.
 Dubet, A., Hacienda, arbitrismo y negociación política : los proyectos de erarios públicos y montes de piedad en los siglos XVI y XVII (Valladolid, 2003) pp. 267–93.
Background painting is The Education of the Children of Clovis, Lawrence Alma-Tadema, 1861