Bank of Italy dissolves Smartbank and Cirdan Group boards of directors. Moral Hazard Italian style
The Bank of Italy, carrying out its activity as a supervisory body of the banking sector, has ordered the dissolution of the bodies with administrative and control functions of Cirdan Group SpA and Smart Bank SpA with headquarters, respectively, in Milan and Naples, and the subjecting them to the extraordinary administration procedure. Practically the banks have been placed under commissioners.
Enrico Ajello and Andrea Guaccero have been appointed extraordinary commissioners, who will now carry out the functions pertaining to the administrative bodies.
The board of directors sent home includes well-known names from Italian finance. The Smart Bank Board of Directors was composed of:
- Carlo Alberto Carnevale Maffe' (President), professor of business strategies at Bocconi and collaborator of Oscar Giannino first on Radio24 and then on the podcast Don Chisciotte;
- Antonio Maria De Negri (CEO), also on the board of the Cirdan Group;
- Benedetta Arese Lucini (Administrator), from Uber;
- Roberta Benedetti del Rio (Independent Director) expert in sustainable investments; And
- Bianca Maria Sole De Negri (Administrator).
SmartBank prided itself on being the digital algorithmic bank, and had frankly very high returns. The latest commercial offer included 5-year step up fixed deposit accounts with incremental fixed interests up to 8.25% in the fifth year, starting from 4.25% the first year, 5.25% the second year, 6.25 % the third, 7.25% the fourth and 8.25% the fifth. Technically the collection is still open, as it closes on January 17, 2024.
The funny thing is that this product, like all the others offered by this fintech, allowed customers to request a liquidity advance of up to 70% of the amount invested against a flexible interest of 2% above 3-month Euribor, i.e. currently 4%+2%. In theory, net of commissions and taxes, for 100 euros deposited and 70 then borrowed for liquidity, there would be a positive return for the depositor of 0.05% per year and then growing.
What happens at this point to those who put the money in the escrow accounts of this bank? Nothing, at least up to 100 thousand euros, because deposits up to this figure are covered by the guarantee of the Interbank Deposit Protection Fund, FITD. Of course, this is a good case of moral hazard in which the business risks, in this case borne by the savers who have deposited the money at very high returns for the market, are then repaid not by those who managed the money or made some risky choices, but from the community. This was truly a textbook case of poor application of moral hazard.
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The article Bank of Italy dissolves the boards of directors of Smartbank and Cirdan Group. Italian-style Moral Hazard comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/banca-ditalia-scioglie-cda-di-smartbank-e-cirdan-group-moral-hazard-allitaliana/ on Thu, 28 Dec 2023 10:22:03 +0000.