Bank of Italy: Bcc reform ok, but changes to the way out and more powers to the parent company

The head of the Supervision of Via Nazionale in a hearing in the Senate: "Positive opinion on the reform, but the parent company should have powers to appoint, dismiss and replace the bodies of the subsidiaries" - Changes also requested on the way out - "Why not allow the CCBs to merge into a cooperative bank?” – Full text attached in Pdf.

Overall positive opinion of Bank of Italy on the reform of the CCBs. However, via Nazionale is asking for improvements on governance and on the delicate question of the way out. In the first case, the single holding company which will control (almost) all the Italian cooperative credit banks should have powers of appointment, revocation and replacement of the bodies of the subsidiaries. In the second, there is the risk - in substance - of a proliferation of small groups and of running into EU legislation on state aid. They are the main corrections to the bank decree (which also contains the reform of the CCBs) suggested by Head of Supervision of the Bank of Italy, Carmelo Barbagallo, who spoke on Tuesday XNUMXst March before the Finance Committee of the Chamber.

“In the face of an overall positive opinion – Barbagallo said during the hearing –, we deem necessary improvement interventions on some specific aspects, but crucial, so that the reform can fully deploy its benefits".

In particular, Barbagallo pointed out that "the governance of the group must favor a better direction of the activities and the control of the risks of the individual CCBs, accompany capital support with correct management incentives, prevent moral hazard".

These objectives would be achieved by attributing to the parent company "pregnant powers of appointment – continued Barbagallo -, revocation, replacement of the bodies of the subsidiaries”, since providing for these powers only in "motivated and exceptional" cases weakens "the management and coordination capacity of the parent company, with prejudice to the stability of the individual banks and of the group as a whole".

Barbagallo then underlined that the authorities - the Ministry of the Economy on a proposal from the Bank of Italy - should be able "to authorise, for reasons of stability, the CCBs to fall below the threshold of the majority of the parent company's capital in cases of financial difficulties of such significance as to jeopardize the stability of the group or of its relevant components".

With regard to regulatory responsibilities, the Head of Supervision of Bank of Italy, with respect to that envisaged by the decree, deems a formulation "more appropriate and functional" in which the Ministry of the Economy, having consulted the Bank of Italy, is responsible for the choices regarding the adequacy size and the ability to access the capital market, while Via Nazionale should be responsible for "implementing the reform in the other aspects of prudential and supervisory content".

Barbagallo also noted that "the reasons why it was eliminated are not clear by article 36 of the Tub the possibility for a CCB to merge into a cooperative bank. Until the transition of the mutual banks to the new group structure is completed, the incorporation of a mutual bank into a popular bank would still be a useful option for managing difficult situations”.

Finally, according to the number one of the Supervision of Palazzo Koch it is necessary to clarify the "exceptional" character of the way-out (i.e. the possibility, for mutual banks with net assets of more than 200 million euros, to transfer the banking business to a banking joint stock company without devolving the assets to mutual funds by paying an extraordinary tax equal to 20% of the reserves) envisaged in reform of cooperative credit banks. With the current legislation, in the "transition phase" a situation of "uncertainty" would be created regarding the number and size of the CCBs that would be part of cooperative groups: it would therefore be prescribed that the right not to join the single holding company can be exercised within a "limited period of time and only by those CBs that present the required amount of the equity aggregate at a specific reference date in the past".

During the hearings in the Chamber, the Alliance of Italian Cooperatives also made its voice heard, giving a positive opinion of the decree, provided that the way out envisages the transfer of the banking business to a joint stock company and not the transformation of the cooperative bank into spa and provided that the reserves remain indivisible and remain with the cooperative.