Shortly after 27 on Wednesday 17.00 November, while all of Italy was distracted by the Berlusconi affair in the Senate, the Government announced the reform of Bank of Italy. This reform is a colossal mess and it will be good to rethink it as soon as possible.
Meanwhile, the reform of our central bank would be implemented with a decree law, ie an instrument that the Constitution provides for in "extraordinary cases of necessity and urgency". These cases do not occur here, especially since the Minister who authored the provision immediately declared that there is no direct connection with the need for money, or rather to find a cover for the abolition of the second installment of the IMU. But even if that had been the case, in my opinion, the decree-law for this reform would have appeared equally unconstitutional as well as inappropriate.
The second mess is that of wanting to make Bank of Italy a public company. There is no central bank in the world whose governance is that of the public company and the reason is even trivial. Central banks operate under a unique prerogative that allows them to make seigniorage profits. They raise funds by issuing money that is not remunerated and employ these same funds at interest. They also profit from a monopolistic position which almost always involves profitable institutional operations. It is therefore, not logical, but necessary that these profits be donated to the states themselves. In a public company, however, profits are distributed to shareholders and executives. In this provision, dividends commensurate with 6% of the new capital will be distributed to the shareholders, established on the maximum limit of the range indicated by the appraisal at 7,5 billion euros.
Let's stay with the appraisal that Bankitalia has commissioned on itself (an already inappropriate process in itself). Its 2012 balance sheet highlights a net worth of 23,5 billion euros. Who is it up to? The experts established that the bulk of the profits that Bankitalia has so far made, but not distributed, comes from seigniorage and therefore cannot be paid to shareholders. It is a position like any other, but let us consider it correct. This means that the "non-seigniorage" profits correspond exclusively to the 7,5 billion established in Wednesday's decree. These 7,5 billion are used as part of a complex of financial assets that Bankitalia records in its balance sheet for a total of 38,5 billion. These are government bonds (almost eight tenths of the total), shares, ETFs and other funds. A 6% yield is very bold and, given the preponderance of government bonds, would be difficult to achieve; it would be justified only with high-risk jobs. It is therefore highly probable that the yield will be lower or that that 6% will end up being extracted from the same seigniorage that was excluded from the evaluation.
New mess when it comes to the question of independence. The Government states in the decree that its objective is to "ensure the Bank of Italy a governance model that strengthens its autonomy and independence". But autonomy and independence from the government with regard to institutional activity are the "conditio sine qua non" of belonging to the European system of central banks (a principle already established by the current statute). Is there therefore a need for the weak Italian government to add its own? Autonomy and independence, on the other hand, have no reason to exist as regards the governance of the company. Where is it written that Bankitalia should be a corporation "nourished" by the Italian state? And that the substantial profits it makes thanks to its status shouldn't be devolved to the state instead of cultivated in a small garden behind the gates of via Nazionale? In reality, inventions are not needed for Bankitalia's governance. It is sufficient that it is copied verbatim from that of the other main central banks of the Eurozone (I would dare to propose Germany and France).
As for the potential "members", the governance model envisaged by this decree is a body participated by "Italian and European subjects". What would happen if a "consortium" of "European" subjects got their hands on the majority of the capital and, by virtue of decisions that could be confirmed by who knows which "European" court of justice, ended up taking over the rich assets of Bank of Italy? Among which, let us not forget, there is gold, which belongs to the Italians even if it formally belongs to Bank of Italy and is no longer needed to issue banknotes.
Finally, we come to the current shareholders who, it is stated, will see the capital base strengthened and therefore the possibility of giving credit to the economy. The economy needs much more (reference to the Bankoro project, by myself and Alberto Quadrio Curzio, in "Il Sole24Ore" 5 September 2013). Here however, in my opinion, there are two scenarios. The first, with the ECB agreeing to consider the revaluation of Bankitalia quotas as an increase in regulatory capital; we would be facing a new mess. In fact, the substantial illiquidity of these units, and therefore the impossibility of recognizing a market price for them, places them in "class 3" in the fair value hierarchy; that is, a subprime class. If it passed through Bankitalia quotas, then it would pass through all the rubbish in which foreign banks (the Germans in the front row) have invested; so it is not difficult to predict their assent to the supposed new statute of our central bank. In this way, the competitors of our banks would be strengthened even more. The second scenario is instead the one in which the ECB, more correctly, refuses to accept that revaluation as assets; also because if three biased experts were enough to "impose" an estimate, the Italian banks would have solved all the problems of their non-performing loans…. In this case, nothing would change in the ability to grant credit in Italy. The only "acquired" result would be the defense of a corporation. Is it fair with so many of our fellow citizens who are in so many difficulties?
