What Visco (not) said about Bcc and cooperative banking groups
The speech by Marco Bindelli, vice president of Banco Marchigiano and managing director for relations with cooperative credit and the parent companies (Ccb Group), on the speech by the governor of the Bank of Italy at the ABI assembly
During the annual meeting of the Italian Banking Association (ABI), the governor of the Bank of Italy , Ignazio Visco, dealing with some specific thematic profiles, spoke on the cooperative credit reform launched in 2016 and, in particular, on the state of Cooperative Credit Banks (Bcc) and on Cooperative Banking Groups (Gbc).
The leading exponent of the National Banking Regulatory Authority began as follows: "The creation of groups, contrary to what many and on several occasions complained about, is not in contrast with the mutual nature of the member banks, which is preserved, nor with the need to maintain close contact with the financed companies and with the local area. On the contrary, it was designed precisely to allow these important characteristics to continue to assert themselves, in a changing world, framing them, however, in a structure capable of facing the difficulties that for some time limited the potential of the sector, such as territorial constraints. and operational, low profitability, weaknesses in corporate governance structures, difficult access to the capital market. "
There are considerations that can be fully shared, especially by those who deal with "management and coordination" since the year (2004) in which the reform of company law was implemented and fought for the creation of two distinct Gbc and that therefore it cannot fail to appreciate the originality of the constitution of banking groups based on contracts and aimed at maintaining the mutual nature of the mutual banks and the “close contact with the financed companies and with the territory to which they belong”.
However, what worries scholars and operators of cooperative credit in these first two years of implementation of the BCC reform is the risk of distorting the newly formed Gbc through significant lucrative operations, never formally opposed by the banking regulator, which, in the absence of specific legislation (currently being implemented), the parent companies could implement; significant in this regard is the case of the bailout of Banca Carige which only recently (fortunately) was wrecked.
In addition, we must then consider the absence, at least formal, of the necessary information and explanatory aid by our Supervisory Authority to allow the mutual banks to interact with the ECB on the peculiarities of a reform that has no equal anywhere else. of the world.
In this context, the cooperative credit sector has feared that the key principles of a reform will be profoundly changed which, as far as will be said, while having undoubtedly fulfilled the requirements requested by the Authorities, still has to reveal the aspects of greatest interest to the mutual banks.
In fact, continuing the examination of the intervention, Visco adds that: "The two cooperative groups that have been set up are pursuing the objectives set by the reform: more effective and homogeneous organizational and risk management standards have been introduced, the functions of internal control, procedures for selecting representatives have been improved, initiatives to reduce internal fragmentation and increase efficiency have been defined. The exercise of the powers of direction and coordination provided for in the cohesion contract has already allowed in numerous cases the parent companies to intervene quickly in the case of BCC in difficulty or affected by illegal phenomena, through aggregations or financial support, also by means of actions of financing. The direction of the parent companies also played a crucial role in the strategies for reducing impaired loans, the impact of which on total loans, net of value adjustments, has almost halved from 6.9 to 3.6 per cent since the constitution of the groups, while still remaining above the average of the system. "
In a nutshell, the Governor confirmed that in a short time the two group leaders were able to perform all those functions that the reform had entrusted to them and that we could summarize in their taking over the prudential supervision activity and in guaranteeing the stability of the system. cooperative credit, in addition to the reduction of impaired loans.
As for the increase in efficiency, the only initiative that Visco sees, with exhortations to the group leaders, is the "reduction of internal fragmentation", that is, the reduction of the number of the Bcc and Casse Rurali (Cr) Trentino, also a task it was very well acquitted by the parent companies which are forcing virtuous banks to make combinations that are sometimes unwelcome; luckily for them, the Bccs of the province of Bolzano – known as Casse Raiffeisen, which have been granted the institutional protection system Ips (Institutional protection scheme) instead of the Gbc – are exempt from the latter – not, however, removed from fear to soon also be involved in credit policy which, for reasons illustrated elsewhere by some scholars, favors the “large banking dimension”.
This analysis, which highlights the correct fulfillment of the functions that the Supervisory has entrusted to the two parent companies, is reaffirmed and strengthened in the continuation of Visco's intervention: “The Bank of Italy will not stop following these intermediaries. The transition to European supervision reflects the fact that the Italian mutual banks, by joining their forces, have created two large national groups. It does not mean entrusting the fate of the cooperative movement to a "distant" supervisor who is unaware of its history and functions. As an integral part of the new supervision, the Bank of Italy contributes to ensuring that the exercise of prudential supervision on the mutual banks affiliated to the groups is respectful of the specific characteristics recognized to such intermediaries by national legislation, also preserving, as far as possible, criteria of interpretative continuity. and application compared to the past. We collaborated with the Ministry of Economy and Finance, the cooperative banking groups and Federcasse to better understand the problems connected with the reform and facilitate the adaptation of the cooperative credit system to the new regime. When necessary, we took action to simplify the rules applicable to cooperative groups and their affiliates, within the limits of current legislation; we remain open to dialogue. The constitution of groups is the instrument chosen by the legislator to allow the cooperative movement in the banking sector to face the changes, in the economy and in society, with its back safe. What is sometimes perceived as a tightening of supervisory criteria is none other than the request to found the new groups on processes, structures and internal rules adequate to the challenges that all banks, not just those of cooperative credit, have to face. This requires a greater ability to accurately estimate risks and manage them appropriately. Especially in these first years of operation, the group leaders are therefore called upon to play a particularly incisive role. "
Apart from the underlying attempt to justify the substantial abdication of their functions of governance of the sector in favor of the Frankfurt Authority, while in other countries of the Union similar cooperative banks have remained under the control of the national supervisory bodies, in the opinion of those who writes, what Visco has avoided addressing is the most relevant and paradoxical issue that has affected the Bcc / Cr with the launch of the Gbc: to be classified as significant for the mere fact of belonging to a large banking group, with all that it follows in terms of higher costs, operational constraints and, consequently, distorting effects of banking competition in favor of large credit institutions and smaller, lucrative banks.
It follows that the limited advantages in terms of efficiency, which the mutual banks have been able to acquire with the merger (assuming that the recovery of efficiency has always occurred through mergers), has been largely lost with the increase in costs recorded both to support – not to mention – the pressing and often bureaucratic request to introduce new "more effective and homogeneous organizational and risk management standards" and to strengthen the internal control functions, both to comply with regulatory standards designed for the large banking giants, rightly classified as significant entities.
After having favored the requests of the Regulator, it is desirable that the group leaders of the Gbc also fulfill the duties imposed on them by the cohesive contact towards the mutual banks and, in particular, that of promoting their competitiveness and efficiency through a offer of products, services, organizational and technological solutions adapted to market needs. This was, perhaps, the ratio legis of the reform, which however remained unnoticed in terms of concreteness, in the face of the partial loss of autonomy of the Bcc / Cr, condemned to a sort of heterogeneous management by the group leaders.
At the same time, the collaboration announced by Visco with the Ministry of Economy and Finance, with the Gbc and Federcasse to "better understand the problems associated with the reform and facilitate the adaptation of the cooperative credit system to the new regime", should, on the one hand, groped to bring the mutual banks, while operating within the Gbc, to operating levels similar to those of the less significant banks (and, therefore, make them equal to the sister companies of the province of Bolzano) and, on the other, ensure that the Ministry of Economic Development issues the decree expired in March 2019 which governs the controls aimed at verifying that the exercise of the role and functions of the parent companies are consistent with the mutual aims of the mutual banks (referring to the cooperative supervision provisions on the parent companies introduced with the Law n.136 / 2018 which converted, with amendments, the Legislative Decree 23 October 2018 n.119). In this way, the doubts and fears suffered by the Bcc / Cr in the last year could remain relegated to the album of (sad) memories and profitability no longer represents an exogenous variable.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/visco-bcc-e-gruppi-bancari-cooperativi/ on Wed, 07 Jul 2021 07:30:47 +0000.