The abundant liquidity made available to the banking system by the Eurosystem has avoided the risk of an acute funding crisis, but now Italian banks must do their part: "by performing their credit allocation function well, in sound and prudent management, with acute selective ability. Their very raison d'être requires it, it is crucial that the economy does not enter into credit suffocation, deteriorating and dragging the prospects of the banking system with it”. This is the warning that the Governor of the Bank of Italy Ignazio Visco expresses today in Parma, on the occasion of the Assiom Forex fair.
In December, bank credit to the private sector in fact recorded a negative record: -20 billion, a figure that worries the Governor. “The extent of the decrease is very high in historical comparison – he observes – the demand for loans has certainly decreased, due to the unfavorable cyclical conditions, but the surveys carried out also indicate a tightening of the credit conditions for businesses”. At the basis of this situation are the funding difficulties on the markets (-2,8 in 2011) and the growing credit risks. But the support of the ECB and the Eurosystem as a whole (for Italian banks gross funds over three years for 116 billion, 60 net and the second operation over three years will start on 29 February) must consolidate the banks in their role. In fact, the prospects facing Italy are recessive and a common effort is needed to reverse the trend. According to the latest Bank of Italy economic bulletin, 2012 will record a decline of 1,5% of the GDP. But it is an "uncertain forecast". And "we need to look ahead, work so that with the normalization of conditions on the financial and credit markets it will be possible to stabilize production activity in Italy as early as the second half of 2012 and return to income expansion next year".
Of course, credit is not a general panacea. So government reforms are essential to give new impetus to the economy, such as liberalizations and regulations favorable to development, because "we need to guarantee those who invest and create job opportunities favorable conditions". And beware of malfeasance: no to "financial benefits", yes to "adequate material infrastructure"; no to the shadow economy, yes to fight tax evasion "but with determination". Among the most recent government interventions, Bankitalia appreciates the ban on simultaneous assignments in competing companies and is ready to contribute to overcoming "certain interpretative uncertainties". Governance is also a place where savings can be made: because "incisive interventions on costs can also be achieved by simplifying the corporate governance structures". While “the capital strengthening needs can be satisfied without a contraction of loans to the economy. We expect the banks' next decisions on dividend policies and manager remuneration to take this need into account. In this regard, the Bank of Italy is about to provide indications aimed at directing their choices on the matter”.
In favor of Italian banks, Visco puts the ratio "between total assets on the balance sheet and core capital below 20, compared with an average of 33 for the main European groups". On the other hand, the EBA's latest recommendation aimed to make the system more resilient in the face of high tensions on sovereign risk and the possibility of new shows. In a fair distribution of responsibilities in the current phase, Visco inevitably also calls on Europe: "The uncertain and ineffective progress of the assistance program for Greece and the long lead times for a solution". And investors' concerns about Italian government bonds are now mitigated, but not allayed ". What Italy is doing today is fine and we need to continue on that path, but we also need to help the markets understand why "operators tend to chase imitative behaviors that feed financial contagion".
In this field, the rating agencies should provide correct information and clarity, but they have not always appeared able to carry out their work adequately: "appropriate standards should be defined and transparent relations should be developed between the agencies and the national and independent institutions supranational companies that carry out similar evaluation tasks by mandate”.
