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The Rupp Report: The History Of The Banks

Jürg Rupp, Executive Editor

Since the recent severe global financial crisis, the banks have been in the focus of the attention of virtually everybody. People on Main Street are often asking questions about the behavior of some banks and their staffs. But how did it all begin? When did the first banks go into business?

Monte Dei Paschi, Siena
Banking history goes back to medieval Tuscany, where the Renaissance started and great geniuses such as Leonardo or Michelangelo were born. Banca Monte dei Paschi di Siena S.p.A. (BMPS) is the third-largest bank in Italy and the world's oldest still-operating bank. BMPS headquarters are in the exclusive and noble Palazzo Salimbeni, in Siena, in the heart of Tuscany. It has some 32,800 employees and is active in Italy and worldwide. The bank participates in several other banks and holds an important collection of 14th- to 19th-century art.

The bank was founded in 1472 in Siena as the pawnshop Monte di Pietà, and took its current name in 1624. In the beginning, it provided small loans to poor farmers. A new charter was granted in 1568, and in 1624 the statutes were changed again, when Grand Duke Ferdinand II granted the revenues from the land domains in the Maremma - the so-called "Paschi" - to the bank. Between 1907 and 1930, branches were founded in many cities in Italy. At the same time, BMPS supported the creation of Banca Toscana. In 1936, it received a new charter that turned it into a financial institution. This charter was valid with few changes up to 1995.

Global Expansion
After World War II, expansion started in the major financial centers of New York City, Singapore, Frankfurt and London. From 1990 to 1994, the bank became the first one in Italy to establish itself in the banking-insurance business.

In August 1995, the Italian Minister of Finance ordered the establishment of two institutions, namely the Fondazione Monte dei Paschi di Siena and Banca Monte dei Paschi di Siena S.p.A. The bank was responsible for insurance and banking; and the foundation, for charity, scientific and educational projects, but also for health and art projects. Its main activities are in the city of Siena and its province. In 1999, the bank was listed on the Milan Stock Exchange. From 2000 to 2005, BMPS acquired several banks with strong local ties.

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Finance And Politics
First established to provide cheap loans to poor farmers, BMPS grew to become Italy's third-largest bank. It is also among the five system-relevant banks. In Siena, the Institute always proved to be a generous promoter and donor. Since its founding in 1472, it has been controlled by a foundation, owned by the city of Siena. With the abundant dividends BMPS distributed, the foundation has played the role of a generous patron in the region. Providing some 1 billion euros over 10 years, the foundation has supported charities, start-up companies and cultural events.

Green Light For A Comeback
Now, at an extraordinary general meeting, it has finally been decided what will open the door for the sale of the bank: A 98.88-percent majority of the shareholders agreed to overturn the limit of 4 percent per shareholder. That rule has so far prevented the majority of BMPS from falling into the "wrong hands."

This is a game-changing decision for Italy. Siena is an extreme example of the close interdependence between the Italian banks and political entities. The system of politics, foundations and banks is breaking apart quite quickly. Whether the Italian bankers will learn something from the very long financial history remains to be seen. If one takes the current global trends from banks into consideration, this probably will not happen. But that's another story.


The 10 Oldest Banks In The World

Rank: 1
Founded: 1472
Name: Banca Monte dei Paschi di Siena
The bank was founded in 1472 in Siena as the Monte di Pietà pawnshop and got its current name in 1624. It is also among the five system-relevant banks in Italy.

Rank: 2/3
Founded: 1486
Name: Fürst Fugger Privatbank
Whether this is the oldest of the German banks is controversial: Is it Fürst Fugger or Berenberg, which has always claimed this title for itself. The fact is that only in 1954 did the Prince Fugger banking business start as it is today, after a long break since the days of the Thirty Years' War (1618-48).\

Rank: 2/3
Founded: 1590
Name: Berenberg Bank.
The Protestant Berenberg brothers, fleeing from Holland, started the Hamburg-based trading house. Since 2010, the majority of the shares have been back in the hands of the owner family.

Rank: 4
Founded: 1668
Name: Sveriges Riksbank
The Swedish central bank is the oldest central bank in the world. Only in 1904 did it receive sole authority to print money. Since 1999, it has been totally independent in the field of monetary policy.

Rank: 5
Founded: 1672
Name: C. Hoare & Co.
Still today, the bank is run by one of the descendants of Sir Richard Hoare. Since 1690, the premises of the bank have been located in Fleet Street, in the heart of the City of London. Very British.

Rank: 6
Founded: 1690
Name: Barclays Bank
Today's third-largest bank in Great Britain was founded by Quakers. In 1967, Barclays established the first automated teller machine (ATM) in the world.

Rank: 7
Founded: 1692
Name: Coutts & Co.
Founder and blacksmith John Campbell of Lundie supplied silver plates and jewels to his Scottish compatriots and managed his customers' financial activities. Since then, the core business has been private asset management. In 2000, the bank was acquired by the Royal Bank of Scotland Group.

Rank: 8
Founded: 1694
Name: Bank of England
The Bank helped England in its rise to become one of the leading naval powers in the 18th and 19th century. After the Swedish Riksbank, it is the second-oldest central bank in the world.

Rank: 9
Founded: 1695
Name: Halifax Bank of Scotland
While the Bank of England should primarily support the government financially, the Bank of Scotland's main activities have been for entrepreneurs. It is the oldest existing bank in the United Kingdom. Through the merger with Halifax Bank in 2001, it became the Halifax Bank of Scotland.

Rank: 10
Founded: 1784
Name: Bank of New York Mellon
Alexander Hamilton, who co-wrote the U.S. Constitution, founded the Bank of New York. It was the first company to be listed on the New York Stock Exchange. The stock market index was launched in 1792. In 2007, the bank was acquired by Mellon Financial Corp. and became the Bank of New York Mellon.



September 3, 2013