In its opinion of 25 March the ECB welcomed the proposed reform of the Italian popular banks (banche popolari), set out in Article 1 of Decree-Law 3/2015 “containing urgent measures for the banking system and investments”.
In the document the central bank describes the reform of the popular banks as “a fundamental step towards addressing the weaknesses in their governance system”, recognising the merit of this legislative innovation in “enhancing an effective power of control by shareholders over management; increasing the banks’ capacity to raise capital; reducing the risk of a concentration of power in the hands of minority groups of shareholders; providing the opportunity to identify synergies and economies of scale through mergers and acquisitions”, while also contributing to raising the overall level of stability of the Italian banking system.
In particular, the authority at the top of the SSM (Single Supervisory Mechanism) examines the threshold set in the decree-law for the obligation to convert popular banks into joint-stock companies – set at total assets of at least EUR 8 billion – describing it as “appropriate” and “consistent” with the current distinction between popular banks with a broad territorial and operational reach, with a business model similar to that of commercial banks, and popular banks inspired by a cooperative and mutualistic banking model.
Furthermore, with regard to conversion into a joint-stock company, the ECB highlights that important benefits may derive from this change for credit institutions, above all as regards compliance with the own funds requirements of the CRR Regulation. Indeed, it is pointed out that the conversion will not only increase the banks’ capacity to raise capital, but will also make it easier to include in common equity tier 1 the capital instruments issued by them.
Lastly, again on the subject of the capitalisation of banks subject to its direct supervision, the ECB clarifies that it falls exclusively to its judgement to limit the right of members to redemption, where this could result in a significant reduction in the bank’s own funds, specifying that the Bank of Italy has an entirely analogous power with regard to smaller popular banks.
In light of the advantages described in the document, the ECB considers that the reform promoted by the Italian government should not undergo substantial changes and encourages its timely implementation.
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