The weekly "Milano Finanza" has long questioned the possibility for popular banks to preserve the characteristics of mutual aid by following the path of unbundling activities along the lines of what happened over twenty years ago for savings banks (with the original foundations becoming owners of minority shares and opening up to the capital market) and he asks why this hypothesis is being objected to by the Bank of Italy at the moment and without explicit reasons. The proposal leads us to explore a similar hypothesis, albeit with significant differences, also for the world of Cooperative credit banks (or at least for those intending to avoid the self-reform being defined), if only to more carefully measure the costs and benefits of the possible alternatives. On the other hand, in the Government's intentions, the BCCs that do not adhere to the new context will have the obligation to transform themselves into joint-stock companies or cooperative banks.
Our idea consists in confer banking operations by the current credit union (which at the same time would renounce the relative license) to a new banking entity which would be set up in the form of a joint-stock company, having the spin-off subject in its capital, this time in a controlling position. Maintaining the predominant character of the activities towards the members, the latter should safeguard the benefits of mutuality enjoyed until the moment of transformation, "freezing" the accumulated reserves according to the principle of their indivisibility. These purposes, then financed with the dividends distributed by the bank, could concern welfare, health, insurance, sports, infrastructural, cultural, social inclusion activities and other activities that local communities may need. Without therefore renouncing the solidarity criteria of cooperation, this transformation would replicate the condition of cooperative ownership of companies in the guise of joint-stock companies, a substantially successful relationship in many production sectors. So why shouldn't this model work in the case of banking cooperation?
Although free to carry out its activities in the round, the new banking entity should give itself, on the input of the shareholder base interested in maximizing benefits, but also in the sustainability of the related risks, some strict statutory limits, for example in terms of service recipients (mostly households and businesses in the area), of qualitative and quantitative diversification of risks (by sector, individual and group), top management shifts (with periods of maximum stay), methods of management selection (meritocratic for the quality and breadth of previous experiences), of penalties (with resignations and exclusions) in case of conflicts of interest not properly managed or of serious faults (e.g. in the case of important administrative sanctions imposed by the Authorities), of monitoring and reporting of results (e.g. in terms of innovative banking activities). And so on, according to a defined context of behavioral rules for the good governance of the banking subsidiary, subjected by the cooperative ownership to meaningful methods of verifying its work. As for opening up to the market, there should be limits to the maximum quota that can be held by the spin-off cooperative, which would favor the entry of new capital by other entities, banking and non-banking, even outside the area, wishing to invest in the initiative.
At the same time, transformation into a joint stock company should not be legally permitted for all BCCs, but only for those with a predefined minimum capital (70/80 million?)element on which the Authorities could leverage to incentivize consolidation operations. In fact, the model would lend itself to performing an aggregating function between banks of the same category with similar market prospects and propensities for efficient management of the operating machine.
It is evident that from then on tax benefits would be lost, being the new business organized according to the profit model of the share company, but it is equally true that they would be acquired operational benefits, overcoming the current constraints of prevalence towards shareholders, territorial expansion, the acquisition of shareholdings and other specific risk assumption rules, now envisaged for mutual banks. Especially for larger entities, these limitations take on increasing weight, reducing the business opportunities that arise. On the other hand, even more favorable treatments of regulation, in application of the principle of proportionality, seem to be struggling so far to establish themselves. Thus, the overall disadvantages of the current cooperative guise seem to outweigh the current advantages allowed by the specific regime, especially for the more dynamic subjects. A stronger and therefore more competitive context is also important for the financial/technological innovations that are being proposed (payment industry, crowdfunding, web banking, digitalisation of processes, CRM techniques, internet platforms for asset management or other more efficient methods of product distribution), often considered by the smaller bank not within its reach.
On the contrary, for the economic/financial development of the territories, the assumption that even on these markets the offer of banking services cannot fail to remain in line with that of the larger and more complex markets should be strategic. So here is another reason in favor of more dynamic credit infrastructures, aimed at creating value for one's own communities, rather than maintaining expensive associative and institutional prerogatives. In fact, it is good to remember that the cost of the banking product belonging to the mutual banks system has so far remained at higher levels than other forms of credit intermediation and that the reform seems to concern itself with keeping together components of the movement that have become less and less homogeneous, rather than its industrial reconfiguration.
And here we come to second possibility, i.e. the transformation of the mutual banks into cooperative banks, as is well known, they are also cooperatives, albeit with non-prevailing mutuality. This segment, currently made up of 37 intermediaries, will see the exit, ope legis, of the largest 10 (those with assets exceeding 8 billion) towards the form of joint stock company in the next two years. According to the most recent Bank of Italy data (hearing in the Chamber of Deputies of its Director General last February), the remaining 27 total assets of less than 50 billion euros, equal to approximately 2% of the entire national system; the last 12 in the ranking by size have assets with a unit amount of less than one billion. Three others narrowly exceed that limit. Each of the 8 smallest manages assets worth a few tens of millions. Also among the 27, one of the largest, at the end of a long crisis was incorporated by a larger sister company, while the sixth largest can only admit a particular category of subjects as a member, limiting its operations to them.
The system, to which the model refers, has therefore evolved in a dystonic manner to the point that the major cooperative banks will have to give up the cooperative configuration, while the minor ones remain confined to a substantially marginal market position. On the other hand, a critical factor brought them all together, given that both groups were affected, albeit with the necessary exceptions, by management inefficiencies strictly attributable to the specific characteristics of governance, in primis per capita vote.
So how can the meager representation of small cooperatives, for which no significant changes to corporate governance are envisaged, represent a model for mutual banks that are already larger in size, more complex from an organizational point of view and with stronger assets? Behind this possible solution there seems to be one cooperative conception of mannerrather than a choice capable of constituting a valid path to improve the performance of local banks. Therefore, if it is understandable that in this phase some of the more solid BCCs are thinking of staying out of a cooperative credit reform which risks making a bundle of everything (see, on the subject, the articles that appeared on Firstonline in the past weeks), it is equally consequent that they prepare themselves to make the most appropriate choice among the possible options. Especially for those who intend to strengthen entrepreneurial action in support of the economy of their territories is it is also of fundamental importance to follow the ongoing evolution of the European regulatory framework after the start of the Banking Union.
Just to give an example, recent determinations of the European Commission, Directorate General for Competition, make it is increasingly difficult to maintain the principles of mutuality as we have practiced them up to now also at system level, if, starting from the next few months, a CCB in crisis, in order to avoid the possibility of state aid, will have to call to the rescue, before its sister companies, shareholders, bondholders and large depositors , making indivisible reserves an increasingly thin barrier against other forms of banking activity. As can be seen, the matter is complex, with scenarios that were difficult to imagine until recently.
Ultimately, what we are proposing here is that the BCCs with better prospects measure themselves with more challenging solutions instead of with paradigms that have not shone so far for their ability to do banking, but which may perhaps seem more accessible only because they retain, nominalistically, the term of credit union. In this, as in other cases, however, nomina non sunt substantia rerum. And we all know how much need there is for new banks.
