Sir, We agree that the Italian banking sector needs restructuring, as you suggest in your editorial “Renzi needs to sort out Italy's struggling banks” (February 18). However, you neglect two aspects: first, the sector’s restructuring has already started, also thanks to an unprecedented series of reform measures introduced by the government; and second, pay-off from reforms takes time and we can only measure their effects in the medium run.

Between the beginning of 2015 and the beginning of 2016, the Italian government introduced radical changes in the banking sector, related to banking foundations, small and medium-sized mutual banks and the 10 largest co-operative banks (the so-called popolari). Reforms are already bearing fruit.

Most of the banking foundations have already changed their charters and the dismissal of the banking participations exceeding the concentration threshold is ongoing. “Popolari” banks are now turning into limited companies, embracing a more transparent and efficient governance standard, kicking off an intense phase of mergers and acquisitions. Over the next few months, the small and midsized co-operative banks will have to make a choice, either to join a holding company integrating most of the current small and midsized co-operative banks or, if they are large enough, to switch to the limited companies regime. The new system will exploit economies of scale, allow better use and allocation of skills, and permit better market access, while improving the management of non-performing loans.

In addition, the Italian government has introduced new rules to limit the number of bank shares that a foundation can hold, and a new tax regime — aligned to international best practices — for loan writedowns, alongside a public guarantee at a market price. “Half-baked” or almost there? Markets are still taking stock of the new set of rules under which banks can now manage bad loans in a much shorter time, which — as the president of the ECB recently said — is the most precious resource in these circumstances.

In 12 months, Italy has passed a set of reforms that have radically renovated the framework of the banking system. It will take (some) time before these reforms deliver new behaviours and better outcomes. Rome wasn’t built in a day.
 

Vincenzo La Via
Direttore Generale del Tesoro