Since the beginning of ‘modern economic growth’ in the nineteenth century, Italy’s financial system has been heavily ‘bank oriented’. In the absence of well-developed capital markets (stock exchanges), ‘universal’ (or ‘mixed’) banks typically provided both long-term and short-term credit as well as investment banking services. During the 1920s, the largest banks acquired control of an important share of manufacturing and utilities companies, a situation that led to instability and eventually to a major bank and industrial crisis during the Great Depression. In the early 1930s the government stepped in to save the largest banks, an operation that resulted in the state’s control of a huge share of Italy’s big business, later (1933) put under the aegis of the IRI. The 1936 Banking Act (legge bancaria) radically altered the existing institutional setting of the banking system by allowing deposit banks to engage only in short-term lending and limiting the extent to which they would be allowed to own shares in non-financial companies. At the same time, between 1936 and 1947 the Banca d’Italia (Bank of Italy) was given extensive supervisory powers aimed at providing stability and promoting efficiency in the credit system. In 1947 an amended Banking Act was passed to provide the framework for the postwar development of Italy’s banking system which continued to the early 1990s.