Popular banks, the “Capital” bill approved. Marattin explains what's wrong
Perhaps due to the noise, both acoustic and media, generated by tractor horns or clumsy ballets in the singing festival par excellence, the news of the approval in the Chamber of Deputies went rather unnoticed. “Capitals” bill (the bill with which the Government intends to restore competitiveness and international attractiveness to the Italian capital market), the entry into force of which becomes practically a done deal (given that now the Senate will only have to discuss a single amendment to the draft, made by colleagues deputies).
“Maiora premunt” said the Latins, but the text of the law contains some innovations with potentially systemic consequences for the country's economy. One above all: the increase from 8 to 16 billion euros asset limit for cooperative banks, i.e. the threshold beyond which these banks are obliged to form a joint-stock company. This is not a question of mere (legal) form, but of substance: the rules of governance from the cooperative banks (which includes the cooperative banks) are quite different from those that regulate the management of banks incorporated as joint stock companies and are the rules of governance the first to dictate the functioning of a system. In cooperatives, for example, each member has the right to one vote at the meeting, regardless of the share of capital held (the so-called per capita vote).
In joint stock companies, however, the voting rights of the individual shareholder depend, in general, on the share of capital held (proportional voting). Yet, the only political voice of some weight that seems (concerned) about the news is that of the Hon. Luigi Marattindeputy of Italia Viva and former economic advisor to Renzi government. It was precisely the Renzi government, in 2016, that introduced the 8 billion limit as part of a more general reform of cooperative credit, in response to the banking crises that had caused such upheaval the year before. Therefore, Affaritaliani.it asked Mr Marattin to detail his opinion.
Honorable Marattin, in 2016 you were economic advisor to the government which introduced the limit of 8 billion to the assets of cooperative banks. What were the reasons for that choice? Are they still relevant today?
We thought that the per capita voting structure was appropriate in smaller, local banks (on which we intervened anyway with the reform of the cooperative credit banks, but without affecting their nature). But in larger banks, one-person voting runs the serious risk of simply becoming an instrument through which local power groups – well established, if not encrusted – maintain control over the bank and prevent the creation of conditions of contestability and therefore competitiveness. . Ultimately preventing the improvement of the service offered and putting at risk, as happened in those years not by chance, the financial stability of some institutions.
After much resistance – in particular from two institutions – all the cooperative banks with assets exceeding eight billion euros have completed the transformation into joint stock companies. And the reform has not failed in its objective of promoting contestability and competitiveness, given that it has the merger between BPM and Banco Popolare originated with the birth of the Terzo Polo. Banking, of course.
Has anyone from the current government or the current majority explained to you why it was decided to double the limit?
No. Yet I asked a few questions around, and at various institutions, but without getting answers that would make me understand a real need. In my speech to the Chamber, last February 6, I pointed out two dangers: one I hope residual, but the other real. The first concerns the possibility (which I repeat, I hope is only theoretical) that some of the ten banks, perhaps the most rebellious ones, could go back. But the other danger is very real: that from the desired, and in some cases necessary, process of merging small or medium-sized cooperative banks, institutions could be born which, at this point, despite having assets of 16 billion, could very well maintain the logic of one-person voting, with all the potential inefficiencies I was talking about before.
There are studies according to which mergers between cooperative banks do not significantly increase their efficiency until after the fourth merger.
I haven't read these studies but I suppose it depends on the size of the merging banks.
Let's focus on the one-vote rule. Even in your speech to the Chamber, you defined it as inadequate for large-scale entities. Do we want to go into detail?
With one-person voting, a “regressive coalition” (i.e. a local power group that controls the bank but keeps it inefficient) can potentially retain power forever; or at least, until it causes her to crash. That bank could instead be managed by others in a better way, bringing benefits to both savers and businesses. But with one vote it is practically impossible – or at least extremely unlikely – to gain control of the institute, no matter how much capital one is willing to put on the table.
Of course, I am not saying that all popular banks are run by regressive coalitions, nor that all potential investors are better managers. But what is certain is that where the risk of inefficiency exists (or of non-exploitation of all potential) it is certainly more serious in larger banks. Which in fact, with the reform, we forced to abandon the per capita vote and to take on a legal form, that of a joint stock company, more suited to market realities.
Therefore, as he also said on 6 February, the rule of per capita voting discourages investments in the capital of cooperative banks, while that of voting proportional to the shares owned makes the banks contestable on the market. Yet, for the Government, the main objective of the “capital bill” would be precisely to attract new investors, including foreign ones, into the Italian market.
And in fact the Government should be asked how these two objectives go together. I did, but I didn't receive a response.
I could object that large cooperative banks (operating with the one-vote system), with assets exceeding 8 billion euros, are a widespread reality in all the main European countries. In France, in 2019, out of 96 commercial banks with assets exceeding 8 billion and registered in databases of BankFocus, 44 were cooperatives; in Germany, it was 9 out of 69; in Austria 5 out of 20; in Spain 3 out of 22. These are no small numbers.
I am an avid fan of comparing with other realities to grasp best practices, but on the condition that adequate account is taken of Italian specificities. To give an example, in no country in the Western world is the first home exempt from both income and property taxation: it would be all too easy to decide that this anomaly must be remedied. However, we would forget to underline that it is difficult to find cases abroad in which the concentration of wealth on home ownership is so widespread, especially among the weakest groups. Or that the overall tax burden in Italy is among the top in the European Union.
Coming back to us, in Italy the banking sector has always been very delicate. Let's think about the historical transition, about thirty years ago, when we went from public bodies to joint-stock companies and the particular role played by local territorial foundations, which on some occasions became “fortresses” of power groups reluctant to compete and to contestability. Or the nature and history of the many, many cooperative banks (some of which, however, have grown so much over time that they have become real protagonists of the market). In short, in our country it was necessary to intervene to break down certain encrustations and certain anti-market impulses, from which other countries are certainly not immune but which in our country were causing particular damage. If nothing else in terms of missed opportunities, that's it.
Data in hand, many scholars (Italian and international) defend the usefulness of cooperative banks, even with assets exceeding 8 billion, for the banking and economic system of a developed country. Cooperative banks – it is said – offer greater support to the real economy, are more oriented towards satisfying the interests of local communities, account holders and financed entities rather than those of shareholders, reduce systemic risk, adopt more prudent policies in covering the non-performing loans are more solid because they have a better ratio between regulatory capital and granted credits. What would you answer me if I told you that spas serve the interests of large investors, while large corporations serve the interests of citizens?
Luckily he used the subjunctive, thus describing a hypothetical situation! Because in that case I would answer that it is a populist slogan, nothing more. The legal form does not determine a priori the performance of a company. Making incursions into other areas here too, it would be like saying that a public company is necessarily better at managing a local public service than a private company.
Instead, obviously, what counts is the results: how many investments it manages to make and what cost structure it has, in order to allow the citizen to be given the best service at the lowest rate. Returning to banks, it would be nonsense to say that a priori a spa is better than a popular one or vice versa. But if a popular company performs badly (or inefficiently) it is a fact that the operation of the market mechanism (i.e. the arrival of investors capable of managing it better) is precluded. Which doesn't happen, by definition, in a spa
Q: Are you afraid that raising the asset limit of popular banks to 16 billion will make possible scenarios similar to the 2015 crisis, or even more serious?
No, fortunately (and partly thanks to public intervention during the Renzi and Gentiloni governments, which through the GACS system, the guarantees on the detection of bad debts, made the start of the NPL market possible) our banking system today is much more solid than in 2015. The risk, however, is what I said before: that any mergers between cooperative banks create institutions of considerable size (up to, in fact, 16 billion in assets) which however will be able to continue to be protected by a governance system not suitable.
In Italy, the best banks incorporated into joint-stock companies have collapsed: Antonveneta, MPS, Italease, Carige. Isn't that the problem for everyone?
Again: the legal form, in itself, does not a priori determine the failure or success of a bank. The experiment – theoretical or above all empirical – of policy to do is something else entirely. Let's take two equally poorly managed banks. One is a popular company, one is a spa. If there is private capital ready to intervene, thus avoiding – among other things – a possible bankruptcy and a consequent more than probable public bailout, there is the same probability that this intervention will be before Is everything possible and then successful?
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