How Would Emperor Tiberius Have Handled Silicon Valley Bank?

A First-Century Roman Bailout Holds Lessons for Today’s Financial Institutions, and Their Regulators

The government bailout during the Roman banking crisis of 33 CE was both necessary and quite unpopular—just like the handling of Silicon Valley Bank, writes historian Edward Watts. Above, a Roman sculpture of bankers piling up records of debt to be burned as part of a loan forgiveness program. Courtesy of Wikimedia Commons (CC BY-SA 3.0).

The recent failures, and subsequent government rescues, of Silicon Valley Bank and First Republic, prompt us to consider an ancient question: How do banks prevent the actions of very rich people from endangering the integrity of a widely used banking system?

Like today, the rapid and unexpected movement of large amounts of capital nearly caused the Roman banking system to collapse in the 1st century. Roman banks survived then because the imperial government injected large amounts of money to stabilize the credit market. And, again like today, that action was both necessary and quite unpopular.

Rome’s crisis began in 33 CE, when anonymous informers accused members of the Roman Senate of enriching themselves by loaning excessive amounts of money, in violation of a law that mandated senators hold a certain portion of their fortunes in Italian real estate. An official investigation, according to the historian Tacitus, determined that “not a single [senator] escaped guilt.” The Senate was given 18 months to get its membership back into compliance with the law. Those who failed to do so risked having their property confiscated.

This presented a significant challenge for most senators. Although they were among the wealthiest Romans, the bulk of their assets consisted of loans that they had made directly to others as well as bonds made up of loans originally issued by others. Such an investment portfolio was not atypical among wealthy Romans of the 1st century, seeing as most large transactions in Rome involved the transfer of bonds from the bank account of a buyer to that of the seller.

But the sudden enforcement of a law requiring senators to own property compelled all 600 senators to radically change what their collection of assets looked like. Soon they were calling in the loans they had made, selling the bonds they owned, and withdrawing the money they had deposited in banks. All of this money then flowed out of the banks and into the Italian property market.

Chaos resulted. Tacitus explains that the sudden demand for high-end Italian estates caused land prices to spike. Meanwhile, there were suddenly too many loans available to sell—collapsing the market and prices of such loans. As a result, Tacitus reports, the more bonds “a man owned, the more disastrous it was for him to sell.”

The senators didn’t have any choice. The law required them to continue liquidating their depreciating assets so that they could purchase real estate at inflated prices. “The result,” Tacitus writes, “was a dearth of money” to loan because the investors “had withdrawn their capital from circulation in order to buy land.”

The Roman banking system had reached a crisis point, threatening the economic life of the empire.

In 33 CE, the Roman banking system was already 200 years old. It was sophisticated and capable when it came to controlling the flow of money. Like modern financial institutions, bankers took in deposits, paid interest to the depositor, and turned profits by loaning money to borrowers at a higher interest rate than they paid depositors. But Roman bankers did far more than this. If someone needed to pay a bill at some point in the future, bankers could receive the funds, and then issue payment in cash on the depositor’s behalf when it was time to disburse it. They would cash checks issued to a creditor by someone who had money deposited with them, either by giving the person currency in exchange for the check or by crediting the sum to their account. Bankers managed property sales, both as agents for the sellers and as figures who provided credit for the buyers.

For the economy to stay solvent, Romans needed to believe in the integrity of their banking system, trust that the funds they had placed in it remained secure, and know that funds were available to borrow if they needed to do so.

And, just as the Federal Reserve today depends on banks in the United States to circulate new dollar bills into the economy, the Roman state depended upon bankers to collect worn-out coins, turn them over to the treasury, and replace them with newly minted ones.

All of these actions made bankers money. Every time a banker made a transaction on behalf of a client, he debited a fee from the account balance that the client had deposited. Bankers also were permitted to invest the wealth deposited with them in ventures they believed would make a profit. When they did this, they paid the client for borrowing against their deposits. These usage fees could be quite large. Justinian’s Digest mentions a banker who paid a sum roughly equivalent to $800,000 today to a client because of the “many transactions” he had undertaken using money from the man’s accounts.

Despite all of these innovations, Romans in 33 CE still had not figured out how to secure the wealth of bankers and depositors if the debts upon which credit instruments were based went bad. This was not because they lacked experience responding to financial crises. In the early ’80s BCE, for example, the massacre of thousands of businessmen in Asia Minor by King Mithridates of Pontus made the loans they had taken out impossible to collect. Suddenly those loans, the bonds based on those loans, and all of the deposits backed by these bonds became worthless. In response to the destruction of so much wealth, the Roman government responded by minting large numbers of silver coins, an action that limited but did not reverse the economic damage.

Romans tried a different strategy in 49 BC when armies led by Julius Caesar crossed the Rubicon River and captured the city of Rome. When nervous senators called in loans and tried to convert large amounts of high-value bonds into currency that they could carry with them if they needed to flee Italy, Caesar introduced emergency measures that he believed would calm the financial markets. They included mandating a mediation process before any lender could compel repayment, placing a limit on the amount of gold and silver any individual could possess, and instituting capital controls to prevent the wealthy from liquidating their financial assets and fleeing Rome with the cash.

None of these strategies would have, by themselves, solved the problem Rome faced in 33 CE. For the economy to stay solvent, Romans needed to believe in the integrity of their banking system, trust that the funds they had placed in it remained secure, and know that funds were available to borrow if they needed to do so. Only the emperor Tiberius had the capacity to intervene in a fashion that addressed all these concerns.

Tiberius’ answer was to aggressively recapitalize the banks. Tacitus, our most detailed source for this crisis, explains that the emperor infused the equivalent of more than $2 billion of his own money “into the banks and permitted them to make many loans without interest for three years” using these funds. He augmented this short-term injection of capital with a long-term program of monetary stimulus. Roman mints produced 800% more silver coins and 300% more gold coins in the years immediately following this crisis, and many of these coins entered the economy through banks in Rome.

Tiberius also eliminated the condition that caused the crisis in the first place by quietly suspending any further enforcement of the mandate that senators hold a certain portion of their wealth in real estate. “In this way,” Tacitus wrote, “credit was restored and, gradually, private lenders were found.”

The senate honored Tiberius for his successful economic rescue, and later authors praised his “generosity,” but not all Romans approved of his actions. Tacitus, for one, saw Tiberius’ bailout as creating a moral hazard. What began as a rigorous effort to reform illegal financial behavior by senators, Tacitus argued, “ended in negligence, as generally happens.” Tacitus wrote that “the public good was placed below private profit” after “the curse of usury became ingrained in Rome.”

Tacitus’s concerns—about the moral hazards of using public resources to reinforce a financial system undermined by the illegal behavior of the wealthy—remain relevant today. Bank bailouts are essential to the functioning of a sophisticated economy, but they will always be unpopular when they appear to reward the rich rather than protect the interests of the public. In ancient Rome and modern America, these bailouts should be paired with vigorous, sustained reform efforts to correct the misbehavior of the wealthy.

Unfortunately, as Tacitus reminds us, they seldom are.


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