A boost to the bad bank has also come in recent days from the president of the ECB Mario Draghi, according to Fortune the second most influential leader in the world ofAfter Apple CEO Tim Cook and before Chinese President Xi Jinping and PPope Francis. “The ECB looks very favorably on initiatives to reduce the weight of impaired loans in banks' balance sheets in order to free up resources "for the benefit of companies, Draghi said in a hearing in the Chamber. Draghi's is the latest in a series of statements in favor of the bad bank by the authorities: the governor of Bank of Italy Ignazio Visco the president of Consob spoke generically of a solution that respects European competition law Joseph Vegas indicated the need for different forms from those of other European countries with greater involvement of the private sector, finally the minister Pier Carlo Padoan a few days ago he proposed a light solution with specific regulatory measures that can facilitate the transfer of non-performing loans.
What is certain is that, despite the fact that bad banks have been talked about for a long time and we have now reached penalties, there is still little clarity on whether and how the bad bank will take shape.
Giacomo Vaciago, professor of Monetary Economics at the Catholic University of Milan, interviewed by FIRSTonline, proceeding without further delay to a bad bank is now a priority, through a solution that standardizes non-performing loans and a decree that sets the rules. Otherwise, there is little that can be done, Draghi's Qe will serve Germany above all.
What do you think of the bad bank debate?
It is urgent, certainly it is better late than never. We speak of a bad bank when a publicly managed public vehicle is created to which non-performing loans (Npl) are transferred at reasonable prices. Now, on the other hand, I believe a solution is more necessary that passes through a decree on the rules, the tax deduction of losses and private operators suitable for the mission, i.e. who buy the non-performing loans, and which will probably come from abroad. If you want NPLs to be taken off the banks and traded, you need to establish standardization. Among other things, if we had standardized and securitized them appropriately a few years ago we could have sold them to the ECB. How can Dragons buy this card instead?
However, you lean towards a private solution, is this the best way for the system?
Today it is late for the public road and the situation is not so serious as to have to think about a solution like the Swedish one of temporary nationalisation. Today we are not facing a ravine but facing a wall to climb, which is the economic recovery, but our pockets are full of stones and we are unable to climb. It's also a mistake to dramatize, it's not true that tomorrow we'll all die of hunger, every so often as we're doing, we'll sell our jewels to the Chinese, to the Koreans. But by not solving the problems immediately we widen the gap between those who do well and those who do badly and in 2015 those who did well will do better, those who did badly will do worse. There is talk of a recovery in 2015 but we will not have a recovery with the banks reducing loans. This year only those who did well will start again, which among other things are those who export and sell to the rest of the world. Who was bad will be worse.
QWould this solution be compatible with the European rules prohibiting state aid?
In my opinion it would not be a problem at European level. If we know how to explain to Brussels that this is in everyone's interest and that we simply ask to do what the others have already done. I have been arguing for years that we Italians have not yet understood what crisis we are experiencing. Everyone has talked about a sovereign debt crisis, public debt. The crisis, on the other hand, arrives in Europe as excessive private debt, it arises from the banks, from the subprime crisis, which are loans granted to subjects at high risk of insolvency.
At one point the Greek situation precipitated the situation on public debts.
Only Greece has told lies and had a public debt crisis. We were also deceived by the markets that took Athens as the emblem of southern Europe and ruled that it was a sovereign debt crisis. It wasn't true, at the time 106 the debt/GDP ratio was still sustainable. But it certainly didn't allow us to bail out the banks. But ignoring what happened to the bank debt means not having understood anything, it means thinking that Greece is Europe but that's not the case. Treating the crisis as a sovereign debt crisis has exacerbated it.
In what sense?
Here too there was the real estate bubble and the consequences of expansive policies that led to excess bank debt, but we treated them with aspirin. With the Tremonti bonds came the idea of lending Treasury money and making a spread on it, they cost 3% and went back to 9. Meanwhile the banks were cutting loans. When I see these solutions that only Italy adopts I laugh. We had the most beautiful neglected banking crisis in the world while elsewhere banks have to be bailed out with public money: Germany put billions into the banks and was able to do so because when the crisis came it didn't have too much public debt, Ireland nationalized banks temporarily and Spain made the bad bank, both publicized private debt. To do so, however, it is necessary to arrive at the crisis with little debt and we had not understood nor been able to do what had to be done. How did we double the public debt if we were already at 106 debt/GDP? But instead of implementing austerity to reduce the public deficit, we had to immediately implement the bad bank or a similar solution.
It was and still is also a question of budgetary constraints.
It takes some money but the problem is finding the courage to tell the truth. We have slept off the Monti government out of pride, we have lost the opportunity to tell the European Community to do what was indispensable. Three years ago we could have negotiated a solution if we understood right away that it was a private debt crisis and not a public one. The Treasury, Maria Cannata, has never lost access to the market, however in the summer of 2011 the banks lost it: wholesale funding from the interbank system fell by 100 billion, loans were thus cut by another 100 and bad debts increased by another 100 as a result.
And now?
In physiological times, banks take 10 years of profits to absorb these non-performing loans, it's a blocked pipe. And Qe doesn't go through this pipe, which is why it won't work in Italy. Germany needs more than Italy. And the Germans don't understand this.
CHow to unlock the impasse?
The big banks are well advanced, they are coming out of the doldrums. They are the small ones that Bankitalia worries about because the rest of the banking system is at a standstill and the system will not restart. Even everything that has happened on the popular banks, with the reform in the joint stock company, concerns the fact that they are the ones that have to be recapitalised.
I thus expected that the bad bank would be acted upon as was done with the decree on cooperative banks, with determination and speed: it is necessary to allow the system to clean up the balance sheets quickly. In civilized countries, when there is a crisis, the authorities meet and set up a joint working table and I would have expected that the Ministry of the Treasury, Bank of Italy, and Consob would set up a joint working group that would pass on to Parliament daily indications on what to do . Now we need the courage to go to Parliament and say that the banks are a resource of the country and must be helped.
