While not uncontested by other Italian city-states, Venice was a candidate for the foremost financial center of Europe in the 15th century. It was not home to many financial institutions but the ones it did possess were among the largest in Europe. These were banks tied to big merchant families, often noble families. Yet, in 1499, it nearly all came crashing down. The government tried to resolve the situation, yet it fell short when the first two of these banks failed. Only when the third was threatened was the scale of intervention large enough to arrest the panic. This is the second of a two-part series on Venice’s 1499 banking crisis. The first covered the fiscal and monetary origins of the panic and its first casualty, the Garzoni bank.
Bank Runs
In February 1499, the largest and oldest of the banks operating in Venice had failed – the Garzoni bank. There was little information available but rumors on which to assess the health of the remaining banks. These did not do anything to stem a sense of panic. Then again, even if the banks were purportedly solid, and had the people believed this, it still might not have been enough given the monetary circumstances of the day.
When a bank fails, money previously counted among the safe liquid assets of households and firms, namely the deposits locked up in the now-closed bank, are no longer seen in the same light. Merchants which once possessed ample funds on hand were now overextended themselves; in response, they might reduce the credit they provide to their counterparties in trade or hoard metal coins and bullion. This would have caused deposits at the remaining banks to be withdrawn.
Because of conditions in the city, the banks would have struggled to call in their loans, sell tangible assets they often held like real estate or jewels, or liquidate securities like government bonds. If they could, the discounts to prior fair values would have been enormous. Venice was then in the midst of a liquidity crunch that meant liquid money was in short supply all over the city. It was unlikely therefore that a bank facing a bank run in Venice could survive it. Unfortunately, the banking panic underway in early 1499 did not end after its first victim, the Garzoni bank, succumbed to the frenzied withdraws.
Failure of the Lippomano Bank
After many weeks of continued withdrawals from the remaining banks, another emergency meeting of Venice’s government on May 15 discussed the trouble now facing the Lippomano bank. This was a large but young bank dating only to 1480. It would not survive to see the end of the century. That said, the government tried to do something and intervened in the ongoing banking panic once more.
In the wake of Garzoni’s failure, the state was keen to defend the city’s reputation for financial strength. The eyes of Europe’s merchants were on them as many foreign traders relied on Venice’s banks. Those most exposed were closer to home though; they were numerous among the classes most represented in Venice’s government. In fact, Lippomano had been the preferred bank of many of Venice’s noble families; 700 accounts there were maintained by this stratum of people alone.
So, it’s not surprising that the government bailed out the Lippomano bank with a 10,000-ducat loan. Just as with its effort to rescue the Garzoni bank earlier in the year, the amount was far too little. It was not even the government’s own money. Because of wars then underway, the government was so short of funding that this was actually money cobbled together from private sources.
Withdraws continued, including by those in high office who had approved the bailout. The Lippomano bank failed on May 16 with debts of 120,000 ducats. It did not surrender easily. It was said that the bank had somehow managed to satisfy the withdraw of 250,000 ducats by the time it had failed.
After satisfying the withdraws made prior to the failure of the bank, it possessed loans of 18,000 ducats, real estate worth between 12,900 and 27,500 ducats, between 34,000 and 41,000 ducats in government bonds, other credits to the state worth 26,000 ducats, and jewels and cash of 24,000. At these values, amalgamated from numbers provided by the contemporary Venetian diarist Marino Sanuto and others, the bank’s assets would have just about barely covered its liabilities.
Nonetheless, the source of these asset values may be doubtful and they include personal assets of the bankers, which were available to cover losses nonetheless as there was no limited liability protecting Venetian businessmen. There would have been a day of reckoning among the family anyway because in the case of the Lippomano bank, just as with the Garzoni, the assets included bank loans made to the Lippomano family itself. In any case, no distinction between family and firm was typically made at the time.
Crisis Arrested
In any case, in the aftermath of the failure of Lippomano, bankruptcies rose briskly. A bullion dealer of the Lippomano bank also failed, owing 40,000 ducats, half of it due to the bankrupt bank itself. Moneychangers and nobles were also declaring bankruptcy in the city. The Milanese ambassador in Venice reported that business life came to a standstill as no one knew who could be trusted.
Just as when the Garzoni bank failed, creditors were scrambling to settle their own affairs after the Lippomano bank failure changed their own positions. That same Milanese ambassador had proposed a plan that would have allowed Milanese merchants, creditors to the busted bank, to offset their own debts with claims they had against the two failed institutions. In circumstances like this, when every merchant needs to think about correcting their own course, it’s easy to see how the panic would have moved on to its next victim. Yet, there were now just two large banks left in Venice. The crisis moved on to one of these last potential casualties, the Pisani bank, which had been formed in 1475.
This bank faced heightened demands for withdraws starting the very next day, May 17, 1499. This time, the government announced a 100,000-ducat bailout in the form of guarantee of bank liabilities. This was more meaningful than any seen so far. Rather than simply facilitate the payment of more withdraws but without successfully stopping the panic, the action was complemented by a further 100,000 ducats contributed by members of the Pisani family. Other prominent Venetians pledged more and the total support for the bank came to 320,000 ducats.
“Then our Signoria [the Venetian state], after consulting with the Collegio, undertook this remedy: these heads of the Ten were sent forthwith to Rialto, together with ser Marco Antonio Morexini, knight and councillor, ser Filippo Trun, procurator and savio dil Consejo, ser Alvise Venier, savio di Terraferma, and Zacharia di Freschi, secretary. When they arrived at the bank, they made the whole crowd give way, and the herald announced that this bank was giving surety funds amounting to 100,000 ducats, naming the guarantors. Thereupon, just as everyone had earlier wished to withdraw his deposit, now everyone shouted at the same time, ‘Take my pledge for me.’” – Diarii of Marino Sanuto, Volume 2
The wave of withdraws reversed. Another bank, that of the Agostini, saw May 17 end with a net inflow of 40,000 ducats whereas it had started with 16,000 ducats of withdraws. The crisis was suspended. Not that all was well though. Two large banks, in a city with just four at the start of the panic, had failed; the savings of many were lost, or at least tied up in claims against the bankers that took years to sort out.
Collateral Damage
In the meantime, Venetian trade was disrupted. With money unavailable, the state had to step in during 1499 in order to finance critical voyages to buy spices from abroad and maintain Venice’s role as a port of entry for these goods. Yet, competing merchant communities from abroad still found places to gain market share.
In what must have seemed embarrassing at best, military commanders were asking for their troops’ wages while the government had to keep them waiting as money was shored up. The generosity of illustrious citizens was relied on when Antonio Grimani, a noble and future doge of the city, was elected a captain general of the Venetian navy when he offered to personally fund the expenses of ten galleys in the war against the Ottomans.
Despite these efforts and the resolution of the financial panic, the long run fortunes of the city would ultimately be shaken fundamentally after the delivery, on August 7, 1499, of news via Alexandria in Egypt that a Portuguese fleet may have arrived in India. Hereafter, monies sent to Venice for purchases by buyers across Europe would go instead to places like Lisbon and Antwerp, the premier entrepôts of the next century. That same month saw naval defeats at the hands of the Ottomans. Venice may have remained an important trading city, but never again would it have such a dominant position amongst them.
Slow Recovery
Yet, the financial system did set about rebuilding itself. On February 3, 1500, the Garzoni bank reopened, almost exactly a year after it had closed. The bank still owed 200,000 ducats to its former clients but many of these agreed to swap their claims for credits on the new bank. This new Garzoni firm was backed by a government guarantee of 20,000 ducats worth of deposits, the minimum required under the city’s banking regulations.
On top of this, the Garzoni family pledged 50,000 ducats in cash and 100,000 in real estate assets towards their bank. Andrea Garzoni later dramatically emptied bags of coins to dispel a rumor circulating that the bags of money on display at the opening ceremony of the bank were not filled with coins. Despite the rumors, confidence was sufficient for the bank to receive 50,000 ducats in deposits on its first day in operation.
Regardless, notwithstanding Andrea Garzoni’s actions, the Garzoni bank would close again after just six weeks. The Lippomano bank had been preparing to reopen but seeing that the Garzoni firm failed in its attempt, gave up its own effort. Members of both families fled the city, no doubt to avoid the ire of depositors, and it took both years to settle with their creditors. Creditors of the Lippomano bank received a recovery of 65% on their deposits. Before then, the Pisani bank which had survived the crisis also chose to unwind voluntarily. It returned 100% of amounts due to its depositors before closing its doors. Still, this meant that the city was left with just a single bank.
Bond prices in Venice had recovered somewhat by 1502 and a peace treaty with the Ottoman Empire in 1503 supported a stronger recovery in Venetian banking. The temporary monopoly of the Agostini bank was broken with the re-opening of the Pisani bank in 1504. There was also the founding of a new bank by merchant Girolamo Priuli in 1507; that same year, yet another bank, called Capelli, was formed.
Lesson
Bank rescues are tests of the commitment and credibility of the rescuer. A large intervention by a credible actor, one that can be trusted to follow through, may very well not even need to be relied on in the end. The commitment itself can restore confidence and arrest a bank run. Unfortunately, the commitments of the Venetian government in the instance of the failure of Garzoni and Lippomano fell short, perhaps not in credibility, but certainly in size. This was corrected for when the Pisani bank was threatened and the difference in outcome was stark.
More from the Tontine Coffee-House
Read the first part of this post and the many banks in Tuscany in the 13th and 14th centuries. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.
Further Reading
1. Kittler, Juraj. “Too Big to Fail – the 1499-1500 Banking Crisis in Renaissance Venice.” Journal of Cultural Economy, vol. 5, no. 2, May 2012, pp. 165–78.
2. Lane, Frederic C. “Venetian Bankers, 1496-1533: A Study in the Early Stages of Deposit Banking.” Journal of Political Economy, vol. 45, no. 2, Apr. 1937, pp. 187–206.
3. Mueller, Reinhold C. “The Making of the Panic of 1499-1500.” The Venetian Money Market – Banks, Panics, and the Public Debt, 1200-1500, The Johns Hopkins University Press, 1997, pp. 230–51.
4. Sanudo, Marino. “Chapter 5: Economic Networks and Institutions.” Venice, Cità Excelentissima – Selections from the Renaissance Diaries of Marin Sanudo, edited by Patricia H. Labalme and Laura Sanguineti White, translated by Linda L. Carroll, Johns Hopkins University Press, 2008, pp. 227–84.
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