May 16, 2021

The Italian banking blues | Economy

The Italian banking blues | Economy

The chimes of the new year, which also marked the third anniversary of the European Banking Resolution Directive (BRRD), were almost over when Italy woke up with a new banking accident, the third in those three years with common European regulations for banking crises.

Specifically, at the first hour of the first working day of 2019, the Carige bank, from a historic savings bank in Genoa and the Liguria Region, was suspended from trading, and intervened by the European Central Bank, because it could not obtain the closing of the year the capital increase to which it had committed itself with the supervisor to correct the deficit of own resources.

It is true that neither the intervention decision is a big surprise – the main shareholder, with 28%, had already anticipated their inability and / or unwillingness to support the required expansion, nor the entity has a size or complexity as to destabilize the system as a whole, since it is the tenth entity, with assets slightly below 25,000 million.

But above the numbers, and the quantitative importance, the intervention of Carige will constitute a new source of distrust for an Italian banking system that, to its own structural problems (overcapacity, fragmentation, and unproductive assets) has had to add in recent months the burden of a public debt (more than 10% of bank balance sheets in the whole system) that has suffered a significant loss of value since the new government began its "pulse" against Europe with a project of unacceptable budget, finally redirected, but with a heavy burden on the Italian risk premium.

On the other hand, distrust of the banking system emerges, first of all, due to the doubts that exist regarding the degree of effective sanitization of unproductive assets in Italy, but also due to the doubts that that country generates regarding the restructuring of its Bank System.

In this sense, Carige's decision to intervene will probably give way to a new bank resolution process in Italy, which will be the third one (after those of Monte Paschi di Siena and the Venetos banks) just three years after the effective date of the BRRD. Precisely the heterogeneity of the resolution measures taken in the two previous cases, with a somewhat distorted interpretation of the BRRD, in contrast to the resolution of Banco Popular, which abided by the aforementioned directive, has systematically weighed on the credibility of the Italian authorities, but also to some extent of the European authorities, with regard to the strict application of the BRRD.

Ángel Berges and Javier Pino are professors of AFI- Escuela de Finanzas


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