• Banking and Finance in Historical Perspective
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37. Jahrgang | Jahr 2011 | Heft 2


Aufsatz: Seite 101–119

Stefano Battilossi
Corrupting a German Model?
The Corporate Governance of Italian Universal Banks, 1894–1933
Theoretical considerations suggest that corporate governance mechanisms, such as ownership and agency relationships, may play an important role in influencing the risk taking behavior of financial intermediaries – and consequently financial stability – as well as in reducing conflicts of interest and moral hazard in insider systems in which universal banks enter into a long-term relationship with industrial companies. The present paper explores a series of corporate governance conflicts that emerged within the main Italian universal banks from the mid-1890s until the beginning of the 1930s. The pre-wartime period was characterized by conflicts between shareholders and executive managers concerning relationship banking. Foreign shareholders disliked the inclination of managers to allow the banks to take long-term equity holdings in industrial firms and questioned their use of business practices, such as repurchase agreements and guarantees, which led to further immobilizations in connected companies. This practice was regarded as an unwelcome departure from the prudent pattern of business pursued by German and French banks, and shareholders struggled to maintain control of the managers' behaviour. The war and the ensuing reorganization of the banks’ ownership structures led to a destruction of internal mechanisms of corporate governance and uncontrolled risk taking, which turned the banks de facto into industrial holdings and eventually brought the Italian system of 'universal-with-relationship'-banking to an end.