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The reform of cooperative banks will go ahead, and will be speeded up too

by Isabella Bufacchi

The reform of the cooperative banks pushed forward by Matteo Renzi’s government will go ahead. It has been lying dormant in politicians’ drawers for two decades and now, in the framework of the Banking Union and the Single Supervisory Mechanism, it must be accelerated to enhance the efficiency and resilience of the Italian banking system. This message was conveyed loud and clear yesterday by the minister of Economy Pier Carlo Padoan and the vice governor of the Bank of Italy Fabio Panetta, in an international conference organized in Rome by the Foundation for European Progressive Studies and the Fondazione Italianieuropei, which took place yesterday February 6.

Padoan said that Italian banks have done very well during the crisis ignited by Greece in 2010 and they “will do well in the future” but nevertheless the financial system in Europe and in Italy needs an increased diversification of funding sources to go beyond the banking sector. The Capital Markets Union is essential as much as the Banking Union. Padoan said that the QE by the ECB will be a “game changer” and he totally disagreed with those who think that an expansionary monetary policy by the ECB will take off the pressure from governments that need to do the reforms. “Reforms must not be carried out thanks to external pressure - he pointed out - but by the awareness of people and countries that reforms are needed.” Padoan argued that the reform of the cooperative banks, “which has been lying in politicians drawers for two decades”, must be done and must be accelerated to strengthen the banks and increase their efficiency to respond to the evolution of the international habitat in “a world that has deeply changed”.

Fabio Panetta, member of the governing board and deputy governor of the Bank of Italy from 8 October 2012, confirmed that the reform of the cooperative banks is here to stay: “the Banking Union has imparted a strong impulse to the efficiency of the financial system byfostering competition across euro area countries”, he commented, inviting the audience to consider the recent decree on the governance of the cooperative banks in Italy. “This initiative is the product of a good many years of reflection on the shortcomings of the cooperative structure for listed or very large banks; at the same time, it can be read as part of a broader reform effort to bring the Italian economy up to the best European standards of efficiency”.

Panetta underlined that the Banking Union project has already helped the stabilization efforts in the Eurozone, which is a pre-requisite for economic growth. “It gave an important signal of the willingness of the member countries to forge ahead with unification, providing a potent antidote to the sovereign debt crisis”. The Banking Union, together with other national and European policies – in particular, the monetary policy measures recently decided by the Governing Council of the ECB – “is already contributing to the normalization in credit conditions for firms and households.” It has imparted a strong impulse to the efficiency of the financial system by fostering competition across euro area countries.

The deputy governor urged further progress towards European integration “as it is essential. We should not forget that the current crisis was provoked, in part, precisely by lack of progress in European integration. We must not make the same mistake twice.” EU member countries are still characterized by different accounting and legal regimes. Convergence is necessary for company, insolvency and taxation law in particular, but a gradual approach will be inevitable.

He concluded by saying: “my own very preliminary assessment of the functioning of the SSM is positive. The progress achieved in such a short time has been amazing, but European firms rely too heavily on banks for external funds.”

Danièle Nouy, Chair of the Supervisory Board of the ECB, said that there is “more light than shade” in the European banking system and that the Single Supervisory Mechanism needs to be “tough and fair at the same time” as “stronger banks are in a better position to lend”. She was very satisfied by the results of the Comprehensive Assessment and revealed that this test is allowing the regulators to carry out further evaluations on a qualitative and quantitative basis. Up to 2019. “A lot has been done but a lot is yet to be don to harmonize the financial system.”

Marina Brogi, full professor of capital markets and deputy dean of the faculty of economics at University “La Sapienza” in Rome said that the “interconnectedness between the banking (and shadow banking) system and capital markets makes the Capital Markets Union - which is at the forefront of the future activities of the newly appointed European Commission - even more urgent and important, as more equity financing must reach companies. “ For Italian companies «this is particularly critical. Equity capital is the physiological source of funding for the new investments necessary to nurture innovation, to enter new markets, to create new employment, to improve productivity and to lastingly enhance competitiveness in a way that will be sustainable even when the euro will no longer favour exports.”