Résumé

The development of Italian investment banking appears as an evolutionary process of innovation aimed at allowing big banks to establish roots in a newly emerging financial system and to adapt to the changes in markets and institutions, mainly in response to crises. Financial innovation, though, was not always expected and managed by ‘regulative’ and ‘institutional’ innovation, thus compelling banks to adapt their strategies to the specific kinds of guarantees and risks they can rely upon and have to cope with. The persistent segmentation of the banking system and the presence of large shares of non-contestable financial intermediaries limited universal banks’ external growth and curtailed their ability to collect resources. Big banks’ responses to those issues tended to increase capital markets weaknesses and instability, exposing the banks themselves to liquidity risks and financial crises. Hazardous credit policies and highly risky asset-liability management strategies adopted in the 1920s transformed universal banks into quasi-holding companies, an ‘innovation’ in the pattern of investment banking that eventually led to their failure in the early 1930s.