Bergamo, February 9, 2013
Mr. Governor, Authorities, Gentlemen Delegates,
A theme that intensely involves the work of our Association, expressly mentioned in the Statute itself as one of the main purposes of ASSIOM FOREX, is that concerning the study and adoption of indices relating to financial markets. And it is on this subject, currently of great importance for the image and credibility of the banking industry, that I am about to formulate some synthetic, but I hope useful, reflections.
In April 2008, therefore in absolutely "unsuspecting" times, our Association wrote a letter to the British Bankers Association, pointing out that the Libor fixings in US dollars marked significant differences with respect to the rates applied on the market and that the reasons for these differences could not be explained by simple market volatility. We therefore drew the attention of the British Banking Association to the fact that this phenomenon could have undermined not only the credibility of LIBOR, as a commonly and intensively used parameter, but also that of the banks that contributed to quoting the indicator, as well as the image of the markets as a whole.
The British Association, in thanking us for the report, replied that for its part, despite having a serious examination of the matter underway, it believed that the published Libor rates reflected as faithfully as possible the conditions actually present on the market.
We all know what has happened since then, what the damage has been for the individual banks involved in this scandal and for the banking and financial system as a whole.
The fact of having highlighted and formally detected such a situation in unsuspecting times, does not represent for us only a "rewarding" issue from an ethical and professional point of view, but more than anything else allows us to be able to affirm, without a shadow of a doubt, as the Italian banks (in fact concretely represented by our Association) were not only obviously extraneous to what happened, but above all pro-active in trying to prevent what, unfortunately, actually happened.
Our Association believes that even today the management of some parameters currently used for various types of fixing can once again generate other serious threats to the image of the markets and the banking industry. These are not dangers attributable to possible manipulations of these indices, which appear unlikely both due to the high level of control and safety safeguards now widely in place, and due to the effective mechanism for determining some of these indicators, as in the case of the Euribor .
However, we believe that there are risks due both to the gradual disengagement of a growing number of banks from the listing of some benchmarks, and to the low volume of transactions which is now worryingly characterizing some markets. These phenomena, in fact, negatively affect the already fragile credibility that the System is currently committed to supporting.
During this first part of the year alone, already around ten banks, including international ones, abruptly withdrew from the quotations of some important indices (in particular the Eurepo and the Eonia Swap Index, representative of the relevant repurchase term and short-term interest rate derivatives). These banks have therefore renounced the role of "Panel Bank" (i.e. bank that contributes to the determination of the index), triggering a dangerous emulation effect, which risks leading to an ever-decreasing reliability of important market indicators, if not to their disappearance.
The possibility of new regulations according to which capital requirements against operational risks could increase for banks that quote market benchmarks has been mooted. Obviously, this eventuality also contributes to fueling the aforementioned phenomenon of disengagement.
In our opinion, these aspects must be evaluated with extreme attention, both by the various Supervisory Authorities and institutions in various capacities interested in this matter, and by the market components themselves, some of which, with an excessively short-sighted view of the problem , believe that by evading certain responsibilities they can avoid being subsequently overwhelmed by the reputational risks of the system that they themselves trigger, with behaviors that appear superficial or in any case not adequately considered.
Our Association vigorously supports the need for all market components to take an active part not only in identifying the critical points of the current situation, but also in proposing effective solutions. The strengthening of Governance as regards the training and control processes of the various benchmarks is certainly a necessary, highly important and urgent step. However, absolutely not sufficient, since the credibility of market indicators cannot be based only on the effectiveness of controls, but must be generated above all by the transparency and liquidity of the underlying markets.
In this sense we are promoters of a project, already being studied at our International Association and already presented at some institutions, for the creation of a European monetary market, which can collect large volumes of transactions, not only between banks, but between all the categories of institutional investors and that it takes place on electronic platforms that can guarantee maximum transparency regarding the conditions and volumes traded, under the authoritative governance and control of specific competent Authorities.
In this period, in which the banking and financial industry, rightly concentrates on a rigid examination of costs, this project, although important and not excessively demanding from an economic point of view, encounters considerable start-up difficulties. with blind nationalistic selfishness and with the business interests of certain operating sectors, which certainly do not facilitate the situation. For these reasons, its implementation is strongly conditioned by the convinced support of the institutions, which we trust can evaluate and certify the validity of such a project, aimed at a common good (among other things, it should not be forgotten that an efficient liquidity market would be functional to the transmission of the Monetary Policy objectives by the Central Bank). On our part, therefore, there is the wish and the hope of finding a such support, which we continue to seek.
I end with a very brief mention of the evolution of our Association, also for the benefit of the numerous members present here today.
Elections for the new management bodies of ASSIOM FOREX will also take place within the framework of this Congress. We are preparing for an important renewal, through the possible entry into these bodies of a professionally authoritative representation of all the major banking groups in our country, as well as of the Italian Banking Association itself. This fact constitutes a rare and very important opportunity for our Association, which has brought together over the years, merging them together, as many as four different previously existing associations, and which now represents in a unified way the complex world of markets and risks financial assets within our System.
The work that the new Council will have to carry out will certainly be difficult and complex, but certainly also stimulating. The important presence of the Bank of Italy within us has always served us, and we need it even more today, to lend our work with a sincere spirit of service. We are an Association of people and our "credibility" is achieved through the full convergence of virtuous behaviors, which must first of all be professed by those who govern the Association, but which must then be put into practice on a daily basis by each of the individual members and which they must therefore become an integral part of our profession. Only through such practical action will we be able to contribute on our part to increasingly improve the trust and credibility that our System badly needs.
Thank you for your attention.
