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SSM President Nouy meets Italian bankers

by Davide Colombo

An exchange of wide-ranging viewpoints on the themes surrounding the European/national debate on the management of the banking crises. This describes yesterday's meeting between the President of the Single Supervisory Mechanism (SSM)'s Supervisory Board, Danièle Nouy, and the Bank of Italy’s board of directors and the managers of the top 13 Italian banks under the European Central Bank (ECB)'s direct surveillance.

It was a routine encounter, which kicked off Nouy's annual schedule of meetings with the national regulators in order to strengthen interactions between the Supervisory Board and those responsible for oversight at a national level.

The Bank of Italy did not issue any official statement regarding the meeting, and its total discretion on this matter was respected by the banks that attended the meeting and the following presentation by the board of directors (which was also attended by Bankitalia's General Vice Director, Fabio Panetta).

Nouy will attend a second meeting today, this time with the senior and junior staff at the Department of Banking and Financial Oversight at the Bank of Italy, with whom she will tackle the specific issues of the SSM's full efficiency and the so-called “joint supervisory team” that several of the Italian central bank’s analysts have joined.

Basically, it should be a very functional meeting about the supervisory guidelines that will be adopted over the course of 2017, a year in which the European Banking Authority (EBA) will not be conducting “stress tests.”

With the bankers convening in Rome, there has been talk about managing irrecoverable debts and other non-performing loans—as well as the low profitability that continues to haunt Italian banks, the credit risk and market risk.

Nouy dealt with the questions by restating how the Supervisory Board works, and then discussing the Supervisory Review and Evaluation Process (SREP). The head of the Frankfurt Supervisory Board spoke off the cuff with the Italian bankers.

Among other things, Nouy was asked a question about whether greater attention being paid to Italian banks' NPLs, in comparison with the illiquid “level 3” activities on the balance sheets of certain Northern European banks.

Nouy denied that the Supervisory Board paid any more or less attention to the various risky activities present in those balance sheets.

Regarding transparency (an issue that piqued the interest of those in attendance), Nouy claimed to be convinced that, for certain aspects of Frankfurt's operations, greater openness would not be of any aid to the monitored banks.

Nearly all of the heads of the large Italian banks were in attendance, starting with Intesa Sanpaolo's Carlo Messina, Mediobanca's Alberto Nagel, and Banco BPM's Giuseppe Castagna. Unicredit CEO Jean Pierre Mustier was absent; manager Marina Natale took over to represent the second-largest Italian bank.

The Italian Banking Assocation’s delegation was led by Maurizio Sella and General Manager Giovanni Sabatini. Fabrizio Viola of Banca Popolare di Vicenza was also present.

Nouy's two days in Rome coincide with the presentation of a new proposal—submitted by the EBA's Italian President, Andrea Enria—to start a European “bad bank” in order to manage €1 trillion in non-performing loans at European banks (in line with the rules on state aid and bail-ins).

Last Saturday, Bank of Italy Governor Ignazio Visco had submitted a proposal to the EU to allow banks to use internal risk-evaluation methods in order to streamline the process of removing bad loans en masse. For these kinds of banks, as Visco noted in his speech to the ASSIOM FOREX, including the effects of divestitures in loss estimates in the case of debtor insolvency (Loss Given Default, or LGD) creates a significant, automatic increase in capital requirements for the entirety of in bonis loans, and therefore a reduction in capital coefficients.