An amendment to the stability law for 2014 called for the Cicr (well yes - the ICRC still exists!) to adopt a discipline on the basis of which "periodically capitalized interest cannot produce further interest which, in subsequent capitalization operations, is calculated exclusively on the principal lot". The sentence is incomprehensible, also because the interests are either capitalized or not. In an attempt to interpret the will of the legislator, on 24 August last the Bank of Italy put a proposed resolution up for consultation, which to date has not been implemented.
The key point is that the rule requires not only to abolish theanatocism interim, but in general to abolish the compound rate, which exists only in countries governed by sharia. Even discounting the fact that many parliamentarians supported this proposal thinking that it referred only to anatocism, it is striking how little economic culture has managed to make inroads in Parliament.
It is therefore necessary to explain analytically that, for example, this standard makes it very difficult to use some technical forms of credit such as current account credit which has the great advantage of flexibility in favor of the customer. With the compound rate, if the customer does not have the liquidity to pay 10 euros at the end of the first year (on a loan, let's say, of 100 euros at a 10% rate), he will have the option to pay at the end of the second year the compound interest, or 21 euros. With the new norm, the bank should oblige him to pay interest the first year because he certainly cannot make a new loan of 10 at zero interest.
The Bank of Italy tries to solve the problem (art. 4 of the proposal) on the one hand by prohibiting, which seems entirely acceptable, the infra-annual capitalization of interest and on the other by setting up a complicated mechanism in which a) "interest is accounted for separately from the principal amount" and becomes payable after sixty days and b ) once this period has elapsed, “the customer can authorize the debiting of interest on the account or card; in this case, the sum debited is considered a principal issue” and therefore interest-bearing.
We hope that the lawyers of the Bank of Italy have managed to find the squaring the circle, but judging by the tenor of a recent meeting of the National Association of Technical Consultants of the Office there is reason to doubt it. The opening report of the Conference is entitled "The compound interest, expunged by Parliament, reappears in the ICRC resolution: 'the tricks' of the Bank of Italy".
The report concludes with an ominous prediction that is already coming true in many courts: "(The resolution) will remain a weak coverage to unlawful conduct with the regrettable reflection that such conduct will not be filtered out in the work of the Supervisory Authority and the burden of recovering and correcting it will be left exclusively to the Judiciary". It is not clear how financial experts can make sensible suggestions to judges if they do not understand that all intertemporal calculations, including those on very simple tools like Bots or BTPs, they can only be based on the compound rate.
However, it must be noted that for many insiders compound interest is a serious crime, a crime. The damage will therefore be considerable: credit for businesses will further tighten, unnecessary trials will be held against the banks, the authority of the Supervisory Authority will be weakened. In perspective, the matter is quite serious and justifies a new attempt by the government to return to Parliament to change the law and adapt it to the common senseas well as, as the European Commission has already reminded us, international standards. We complain about the constraints that others want to impose on the nascent banking union. But few rules do more harm than this one we self-inflicted in splendid solitude.
