The Governor of the Bank of Italy does not see any particular obstacles to the concentration operations that are occurring in this period in the Italian financial system and refers their success to the market dynamics and Shareholders' Choices. In his speech at the 31st ASSIOM FOREX Congress, Fabio Panetta, places emphasis on Eurozone rates which continue to weigh on theproductive activity and on consumption: the concept of neutral rate, he says, does not offer sufficient elements to calibrate the pace of monetary normalization and it is necessary to bring rates around 2% from mid-2025. For Italy he sees a recovery in 2025 and hopes for an upward revision of the rating that has been stuck for 15 years.
Concentrations must be judged by the market and shareholders
Le concentration operations which are affecting the Italian financial system must be framed in a perspective of integration and consolidation of the European market in which Italian banks find themselves with assets much lower than those of other countries and "the operations announced would reduce the dimensional gap between the main Italian intermediaries and European competitors" says Panetta, who observes: "The average value of the assets of the first five banks is four times lower than that of the French banks and one and a half times lower than that of the Spanish and German intermediaries". Moreover, these operations are favoured by theabundance of excess capital in the banking sector, while the prospect of a narrowing of margins on lending activity, linked to the decrease in interest rates, pushes intermediaries to seek economies of scale or production synergies.
La Supervision obviously checks compliance with Italian and European regulations, evaluates the ability of each operation to give life to solid intermediaries, efficient and capable of operating according to principles of sound and prudent management at the service of the real economy and without compromising financial stability. But then "the outcome of the operations is entrusted market dynamics and Shareholders' Choices” says the governor.
Eurozone rates continue to strangle the economy
The Governor does not seem satisfied with the way the monetary policy on the economy of the euro zone. Since last June, the ECB has started to reduce rates, 5 times so far, bringing the reference rate to 2,75%. “However, the normalization process of monetary policy is not over,” observes Panetta. “The reference rate remains higher than neutral rate estimates, that is, the level compatible with the absence of inflationary pressures and with the potential growth of the economy. Consequently, the monetary policy continues to exercise a pressure downwards on theproductive activity e on the dynamics of consumer prices, an effect that is increasingly less necessary in a context where inflation is close to the target and domestic demand remains weak.
From now on, however, the neutral rate concept will progressively lose relevance, says Panetta because estimates of its value “are highly imprecise, and provide only a rough indication of the orientation of monetary policy,” becoming less and less useful as official rates approach the estimated level of the neutral rate. Monetary policy decisions must instead always be based on a overall rating of the real economy and inflation prospects. According to the projections published by the Eurosystem in December, the inflation target would be achieved by bringing rates “around 2” from mid-2025. “Under this scenario, a less aggressive monetary easing could lead to ainflation too low in the medium term" says the governor, specifying that "the main downside risk for inflation is the weakness in economic activity”. Added to this are the risks arising from theincreasing long-term yields. “At this stage, a'excessive attention to the data available from time to time risks generating uncertainty and volatility in the markets, reducing the effectiveness of monetary policy” says the governor.
The effect of Trump's tariffs will be limited, if not slightly negative
Instead, no inflationary pressures are seen either from the labor market or from Trump's tariffs. The tariffs could generate upward pressures linked to a depreciation of the euro against the dollar and any potential measures retaliation by the EU. However, these effects would be offset by a slowdown of the global economy and from diversion to European markets of Chinese goods hit by high tariffs. According to our estimates, the net effect of the tariffs on inflation would therefore be contained, if not slightly negative. If anything, the most insidious risks to inflation come from energy markets, which are experiencing strong volatility and rising prices, particularly for gas.
Italy is no longer the same as 15 years ago: the rating could improve
“Italy has shown that it knows how to react to crises, and cannot be satisfied with modest growth,” says the Governor. It is true that the Italian economic growth has weakened in recent quarters, also due to the international context and in particular the weakness of the Germany and monetary tightening. The main driver of growth was the consumption of families, supported by the strength of the labor market and the gradual, although still partial, recovery of real wages. Overall, 2024 GDP rose by 0,5 percent – about 2 tenths of a percent without adjusting for the higher number of working days – but growth stalled in the second half of the year. However, “according to our forecasts, in the coming months the product will expand again”. It is essential to multiply efforts to complete the investments of the Pnrr and the reforms connected to it, intervening promptly in case of delays.
Not only that. It is essential to implement the Structural budget plan medium-term plan drawn up by the Government and approved in January by the EU Council. The prudent management of public accounts is already giving fruits, having a reduction of the differential of yield between Italian and German government bonds. Continuing on this path could favor a rating improvement of sovereign debt, still at low levels fifteen years ago, when Italian bonds were downgraded following the financial crisis and the euro area debt crisis. “Since then, the Italian economy has made progress in terms of financial stability: the net international investment position has exceeded 12 percent of GDP, an improvement of over 35 percentage points compared to 2013,” the Governor noted.
Banks will need to support deserving SMEs
In Italy, credit dynamics remain negative, although signs of recovery are emerging. Businesses' financial needs remain low due to good profitability and weak investments, while difficulties in accessing credit are decreasing. Banks, moreover, "have a solid capital base, capable of absorbing any increases in demand for financing" that could come especially from small businesses: "it will be essential for banks to ensure access to credit for deserving companies" says Panetta.
Beware of the risk of sudden outflows of funds and certificates
The Governor's attention is also focused on technology and new ways of accessing banking services that allow one to quickly transfer one's savings, even outside of working hours and without going to the counter. This progress offers advantages to customers, but increases liquidity risk for intermediaries, who in tense situations may have to addressing large and sudden outflows of funds. Greater use of the provision at term helps to stabilize funding sources, making the Safer and more predictable liquidity management.
Given the recent strong growth of the so-called CERTIFICATES, also thanks to tax benefits, the Governor underlines that on the one hand they can improve the risk-return profile of diversified portfolios, on the other they are more suitable for savers with adequate financial knowledge and it is "essential that banks ensure their responsible distribution".
Digital Finance: The Markets' Blessing and Cross
The Governor places particular emphasis on this, as the vice president of Bankitalia did yesterday. Chiara Scotti, on the digital finance which is changing the relationship of trust between banks and savers. On the one hand, digitalization allows intermediaries to improve efficiency and risk management, while ensuring time and cost savings for customers. On the other, the growing connection between supervised and non-supervised entities and the complexity of the processes increases the risks for business continuity and for the protection of saversCyber risks, to which the EU has responded with the regulation on the digital operational resilience of the financial sector (DORA), which strengthens surveillance, are aggravated by the concentration of some services in the hands of few global operators.
Digital currencies and the different rules between Europe and the USA
The spread of cryptoactivity requires attention from the authorities, also due to their widespread use in illicit purposes, says Panetta. The situation is evolving differently in different countries, raising complex issues. In Europe, the Review of the regulation on capital requirements introduced a transitional regime for the holding of cryptoactivity by banks, which reflects the spirit of the standard defined by the Basel Committee. Furthermore, with the Regulation on Markets in Crypto Assets (MiCAR), the European legislator has discouraged the development of speculative crypto-assets, prioritizing the protection of holders. "Together with Consob, we have initiated contacts with operators interested in offer crypto-asset services. The task of the Bank of Italy is to ensure that these entities have adequate safeguards to manage strategic, operational and financial risks, as well as those related to money laundering and the evasion of international sanctions,” says the Governor.
The new Trump administration is oriented to support the spread of crypto assets. Regulatory divergences between the United States and Europe will have to be carefully evaluated, because some operators could exploit regulatory differences to adopt opaque or highly risky practices, with possible consequences for savers and the integrity of the financial system.
