by Giovanni Di Lago

Created on: July 26, 2008

Banking From The Beginning: The Original "Old School" Bank -
Banca Monte dei Paschi di Siena (Tuscany, Italy)

Think carefully - what attributes would the "bank of your dreams" possess? Low-interest consumer lending? A customer-friendly application process? Fully ensured deposit accounts? Perhaps localized decision-making? Innovative customer products and services? What more do you need in a bank?

Try almost 2000 branches and over 500 years of history. And it helps if you speak a bit of Italian.

Nestled among the hills of Tuscany, in the heart of what once was medieval (and pre-Roman) Italy, you will find the fabled Banca Monte dei Paschi di Siena (BMPS) a banking institution founded in 1472 by its community to combat abusive lending practices (usury at rates near 40%) as the division of economic status between Siena's haves and have-nots began to widen.

Although it was common for Franciscan orders to create institutions called "monte di pieta" which would offer interest-free loans to the poor and needy, the General Council of the Sienese Republic had a different plan. Their desire was to build a new institution; one which would still offer lending at rates much lower (7.25%) than other public money-lenders, but for the purpose of local community growth and development. Sienese aristocrats and others with means had traditionally banked outside of the area due primarily to a lack of a feasible alternative, so this plan helped to keep Sienese funds in Siena. The most prominent families of Siena were all given seats on the board of directors, and management of the Banca was rotated among these families until Siena became a land under the Grand Duchy of Tuscany in 1624. (Although the "founding families" were generally considered to be astute bankers, their helm heading the Banca did manage to result in one particularly bad lending decision that of financing the sea-faring explorations of one Christopher Columbus, in 1492. Believe it or not, they LOST money on that one.)

When it came to deposit accounts, the subsequent rule of the Grand Duke of Tuscany brought a fresh approach to attracting funds. He decided to encourage growth by becoming the "FDIC Insurance" of his time, so to speak. The Grand Duke guaranteed depositor monies against a lien on the public pasture lands, of which he divided into units and subsequently generated bonds per each unit. These bonds were funded by the revenues of the pasture lands, and were payable to depositors at a rate of 5%.

Fast-forward through centuries of ups and downs in the local and national economies, the founding of the Republic of Italy, and too many wars to mention. Today's BMPS is a publicly-traded company which counts 4.5 million clients serviced through 1,900 branches strong across Italy, with subsidiaries through Europe, Asia, Africa and even the United States. It is consistently among the top 5 banks in Italy and the top 50 in Europe, with assets over (Euro) 120 billion. Regardless, the march to innovate and grow continues; BMPS plans to expand their benchmark online banking services to cellular phone users with the aid of Telecom Italia in the near future, and talks of an acquisition of both banking and non-banking entities are continually rumoured or underway.

Perhaps the lesson BMPS holds for modern-day bankers is many-fold that growth and innovation, though vital, are nothing without perseverance. How many worldwide financial institutions have been shuttered in the last 50 years? 100 years? 500 years? It's anyone's guess. But clearly, the ones that survive and thrive know their roots, and remain true to them even through changing societies. It's a message in a bottle, sent across the sea to us by "the little bank that could" and still does.

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