With the conversion of decree 237/2016, legislative provisions concerning financial, insurance and social security education were introduced for the first time in our country.
This confirms its high strategic value, in order to promote the concept of economic citizenship, based on the responsibility of individual choices, through the improvement of the understanding of financial products to identify risks and opportunities, aligning with international best practices.
In our opinion, the need for greater skills does not end with the knowledge of individual financial instruments, but extends to knowledge, at least basic, on the health status of the banks with which financial relations are held and on the methods of protecting the claims savers, through the deposit guarantee funds, in the event of bank instability.
The following reflections are centered on the changes that have recently occurred in the functioning of these funds, according to the Community Directive on Deposit Guarantee Systems, transposed into our legislation in 2016, and briefly comment on the financial statements, just approved by the respective assemblies. This is the Interbank Fund for the Protection of Depositors (FITD) which associates all banks other than the CCBs and the Deposit Guarantee Fund (FGD) to which these latter banks belong.
They are private law consortia, with compulsory membership, subject to the control of the supervisory authorities, with the task of repaying individual depositors within 7 days up to a maximum of 100.000 euros, at the time of the start of the compulsory administrative liquidation of a bank insolvent, replacing savers in the distribution of residual assets. Insured relationships are a part of the so-called eligible liabilities, i.e. recognized as worthy of protection (essentially deposits and current accounts).
The two guarantee funds can also be called upon to intervene outside the case of immediate repayment of deposits, to guarantee the continuity of corporate functions, generally protect the funds and assets of customers of the failing bank and minimize the use of cash public, but under very specific conditions, such as serious financial and asset imbalances of the bank, ineffectiveness of other measures, public interest.
The condition for proceeding as an alternative to the repayment of deposits is in any case compliance with the principle of the lowest cost.
The fact is that since 2016 both Funds have suspended interventions to support banks in crisis, in order not to run into the exceptions of the European authorities in the matter of state aid and/or the alleged circumvention of the bail-in rules. At present, such interventions are only possible through voluntary funds.
Another relevant change, underlined in both financial statements, is that the financial means available to the Funds from this year must be pre-established, ie advanced by the participating banks and entrusted to the management of the Funds themselves. In this, the "on call" mechanism, which required the members to pay the necessary funds, upon the occurrence of a crisis, is substantially modified.
The amount of these contributions is set at 0,8% of the total protected assets, i.e. deposit and current account balances up to €100.000 per depositor.
The system will gradually become fully operational, to reach the target in 2024, but, to give an idea of the values at stake, as of today, it is a question of 4,5 billion for the FITD (compared to 552 billion of protected deposits for the 193 member banks) and 700 million for the FGD of the cooperative system, against 85 billion of protected deposits, for 330 banks.
These are respectable figures and we begin this year with the management of over 400 million, which has already flowed into the coffers of the two funds.
On the one hand, the higher costs for the banks are evident, on the other, the responsibilities of those who are called to administer these conspicuous resources with care and prudence, to be made readily available if necessary.
The contributions that each bank will have to pay each year to its Fund will be commensurate with the size and risk, since the concept of a bank deposit guarantee fund is assimilated to any premium-maximum-reserve insurance mechanism. With the same volumes of deposits to be protected, the riskier banks will therefore have to contribute more than the less risky ones, to discourage moral hazard behaviour. The calculations on individual risk are being completed, according to statistical-mathematical models approved by the Bank of Italy, with differences, between the two configurations, in the weights to be attributed to the main types of risk.
With the risk-based approach, the Funds will be called upon to carry out a fundamental disciplinary action towards the consortium banks, to minimize the probability of having to proceed with the reimbursement of the protected deposits. Acting in function of crisis prevention therefore becomes a strategic instance, also in consideration of the multiple pathologies. To the traditional dichotomy between performing and non-performing banks, today we have commissioned banks, banks in stress, banks in resolution, banks to be capitalized as a precautionary measure, banks in compulsory administrative liquidation and, obviously, performing banks, although ordered according to different risk classes .
Some considerations must also be made on the duality of the Italian system: FITD accounts for approximately 85% of the total, FGD for the remaining 15%. The premiums collected by the latter are relatively higher, if one considers that the percentage of protected deposits (and of controlled funds) corresponds to a market share of the total deposits collected by the CBs not exceeding 8 per cent. This depends on the greater weight of deposits of less than 100.000 euros, in line with the vocation of cooperative credit banks to operate with subjects (consumer and producer households, small businesses) with smaller financial resources on average.
The balance sheet structures of the two Funds as at 31/12/2016 show some important differences. While the assets of the FITD are represented almost entirely by cash or readily liquid assets, the majority of the assets of the Cooperative Credit Guarantee Fund consist of receivables from consortium members, mostly relating to non-performing loans and receivables from the tax authorities bought by failing banks.
This is due to the attitude of the FGD to favor the support of intermediaries in crisis, after which, in its twenty years of existence, only the first intervention consisted in the repayment of the deposits of a BCC in compulsory liquidation. The FITD accounts for the residual positions relating to liquidation situations in which it intervened, repaying deposits, not without mentioning the 800 billion lire absorbed by the first crisis, at the time of its onset (1987).
The performance of the two Funds will depend on the ability to manage profiles such as:
a) for the CCBs, the recovery of credits purchased by banks that went into decoction until the entry into force of the new European legislation on the bail;
b) the economic management of the financial resources raised to protect the deposits to be protected. The FITD has stipulated a management mandate with the Bank of Italy, with limits in terms of counterparty, concentration, liquidity and rate risks. The FGD will have to address the topic of financial investments as soon as possible;
c) the reduction of the default risk of the CCBs associated with the FDG, to be achieved with the launch of the cooperative banking group scheme and the introduction of the cohesion contract;
d) the action of side funds to support the weakest subjects, rationalizing the use of resources for the three funds (institutional, bondholders and temporary) belonging to cooperative credit. The FITD has created a Solidarity Fund managed within its budget for compensation to the bondholders of the banks that have gone into resolution.
That said, it is useful to make some considerations on the reasons in favor of a single insurance fund, given the dualism described below. The latter appears to be somewhat contradictory in the name of both the freedom of choice of individual banks to join one or another body, and the advantages based on the law of large numbers that regulates every insurance mechanism.
The scenario envisaged at European level is the introduction, albeit in the medium/long term (2024), of a single guarantee system, which both budgets duly take into account. In fact, the name of EDIS (European Deposit Insurance Scheme) refers to the creation of the third pillar of the Banking Union, which since 2014 has included the Directive on the recovery and resolution of banks in crisis (replacing national procedures liquidation) and the Regulation on the single resolution mechanism.
The transition to this scheme will sanction the full coverage on a mutualised basis of protected deposits at European level. The point to be resolved is whether or not the National Guarantee Funds retain a role, especially in terms of using available funds for alternative interventions to the repayment of deposits.
In conclusion, if, as Einaudi warned a century ago, after the banking crises of the first post-war period, "the saver must study carefully, with prudence and without greed, the employment opportunities that present themselves from time to time", he must today also know guide in the new, complex European regulatory framework.
Which, far from remaining a matter for employees only, will have an ever more concrete impact on its financial conditions, as already happened with the first painful cases of bail-ins, which fell completely unexpectedly on the savers of the four banks that went into resolution, and with others that could occur, given the still ongoing banking crises. It is therefore good to invest immediately in this new knowledge, so that, in addition to avoiding the effects of a widespread distrust, one does not have to choose the bank to entrust one's savings to depending on whether one or another national scheme is adhered to of deposit insurance.
On the other hand, savers must also ask themselves what the coexistence of so many funds entails. In addition to the 6 (both mandatory and voluntary) mentioned above, there are also the Atlas Fund and the 20 billion made available by the State, all essentially at the starting line and on alert at the inkling of a crisis. At that point it is not clear whether the race is to finish first or last, based on the specifics of each.
This fragmentation, in addition to being a source of confusion, is deadly because the saver risks paying several times for the same case. An example will help to explain this better. If the two large popular Venetian companies are saved through aggregation and extraordinary intervention by the State, a shareholder who has already lost everything will have to pay another thousand euros as a taxpayer, which is also the cost borne by every Italian family to scrape together the 20 billion of the Decree Bank savers. And if he is really unlucky and has transferred what remains to one of the banks that will remain members of the Atlante Fund, he will also have to shoulder the share of those that have instead decided to repay the costs of the bailout, asking to be reimbursed. This is why our saver/taxpayer would pay three times in defiance of the Latin principle of ne bis in idem and this is also why it is essential to know more exactly how things stand.
