“The difference between the yields of Italian and German government bonds is far greater than would be justified by the fundamentals of our economy. It reflects general fears of the breakup of the monetary union: a remote hypothesis, which is however influencing the choices of international investors”. This is the analysis of the governor of Bank of Italy, Ignazio Visco, who spoke this morning in Rome at themeeting of the Italian Banking Association.
RECESSION: 2012 GDP ALMOST -2%
“The Italian economy is still in recession – continued Visco – and according to consensus forecasts, the average product in Italy this year would decrease by just under two percentage points. The increase in the cost and the deterioration in the availability of credit induced by the sovereign debt crisis contribute to the worsening of the scenario”. Italy must therefore "continue with the action undertaken on the two fronts of public finance and structural reforms, be ready to seize the opportunity that will be provided by the stabilization of the conditions of the financial markets".
BANKS DO NOT LOSE CREDIT FOR COMPANIES
According to the Governor, it is therefore necessary “to make our economic space conducive to business activity, eliminate waste and make public administration more efficient. Italian banks must accompany this effort. Never before have they been called upon to do their job well”. The institutes must be "attentive to the growth prospects of companies, companies in turn endowed with greater capital and more ready to access the capital market directly, these are preconditions for overcoming this crisis to see the Italian economy embark on a lasting recovery ”.
In this phase, Visco underlined again, “the banks are called upon to make difficult decisions: not letting solid companies lack finance, avoiding extending support to those with no prospects. It is the essence of sound and prudent management. The timing and intensity of the recovery in growth also depend on the outcome of these choices”.
STRENGTHEN CAPITAL, CONSOLIDATE PROGRESS
According to Visco, “the progress achieved by banks on the capital front must be consolidated. On the basis of individual analyses, calibrated according to the greater or lesser exposure to the various types of risk, we asked the individual intermediaries to further raise the levels of better quality capital compared to the regulatory ones".
THE TOP 5 ITALIAN BANKS COMPLY WITH EBA PARAMETERS
Visco then announced that the top five Italian banks have passed the exam before the EBA professors. Unicredit, Intesa Sanpaolo, Montepaschi, Banco Popolare and Unione di Banca Italiana comply with the capital targets required by the European Banking Authority, which imposes a Core Tier 1 at 10%.
STATE AID TO BANKS REMAINS LOW
The governor then underlined how “the overall extent of state interventions in support of Italian banks remains low by international comparison. He also reflects the limited diffusion of trading activities in opaque and risky financial products ”. Between 2008 and 2010, state aid was disbursed to European banks, “in the form of recapitalizations and coverage of losses, for 409 billion euros, equal to 3,3% of GDP. Lire 1.111 billion was used for guarantees on liability issues, 9,1% of GDP. In Italy, capital operations amounted to 4,1 billion and 0,3% of GDP. And no guarantees were requested from the banks.
In particular, "the further operation on the capital of Banca Monte dei Paschi di Siena will be of the order of 0,1% of GDP, while the guarantees used for bonds brought to refinancing with the Eurosystem amount today to 5,5% of GDP". The intervention in favor of MPS was necessary - explains Visco - due to the "severe tensions on the financial markets, which made recourse to new capital issues prohibitive, and due to the difficulty in implementing asset disposal plans in a very tense market situation. Achieving the objective with alternative methods would have resulted in a reduction of credit to the economy”.
REDUCE MANAGER SALARIES AND BONUS
“Even the remuneration policies – Visco continued – must aim at the objective of cost reduction. Since March 2008, when the Bank of Italy issued the first Supervisory provisions on remuneration, the main Italian banks have made progress: the total remuneration paid to top executive figures has decreased in the last two years; the disbursement of bonuses has been reduced. Containment is not yet sufficiently widespread among medium-sized listed banking groups, nor has it affected all top management figures".
"The Bank of Italy - he added - also expects the banks to reduce the size of severance payments: overly generous payments place constraints on prudent management and the correct functioning of governance mechanisms".
