A new decree issued by the Italian government earlier this week has brought back into question the nature of co-operative banks in Italy.
Announced by the Italian government on 20 January, the order aims to consolidate the banking sector by changing governance rules for the country’s ‘people’s banks’ (Banca popolare), which are still labelled as “co-operative banks”. This is despite them separating from the sector years ago and are, thus, not bona fide co-operatives.
The 1993 Banking Act distinguishes two different models employed by co-operatives in the banking sector. These are the people’s banks and credit co-operative banks. In the early 2000s popular banks split from the co-operative model, adopting a joint stock companies model, but preserving certain characteristics of shareholder democracy such as the one member, one vote principle. This means that shareholders of those banks have one vote regardless of the size of their stake.
The people’s banks can be considered an intermediate model between commercial banks and credit co-operative banks. Credit co-operative banks (BCCs) are not listed on the stock exchange. They can also benefit from certain tax reliefs, while popular banks do not qualify for tax breaks.
Under the decree, ten popular banks with assets of at least €8bn will have to change their statues and become joint stock companies with voting rights based on the size of each shareholder’s share. With this government decree, co-operative banks will have 18 months to adjust to the new rules, abolishing the one member, one vote principle.
Gianluca Salvatori, chief executive of the European Research Institute on Cooperative and Social Enterprises, thinks the reforms are a logical consequence of the strategy that popular banks have decided to follow, changing their co-operative nature.
“The Italian Banche popolari are already listed in the stock exchange since many years and the decree proposed by the government affects their governance system (one head, one vote). The BCCs (Banche di credito cooperativo) are not affected by the change,” he said.
Announcing the reforms following a council of ministers meeting on 20 January, Prime Minister Matteo Renzi said that the initiative was not designed just for co-operative banks, nor did it aim to denigrate the story of small institutions, but to ensure that banks in the area rose to the challenges of Europe and the world. He also confirmed that no changes would be applied to BCCs. “No one touches the BCCs,” he wrote on his official Twitter account. Minister for the economy, Pier Carlo Padoan also thinks the measure will strengthen the Italian banking system.
There are currently 70 people’s banks in Italy, with 9,248 branches and 1.3m members. The ten banks affected by the reform are Ubi, Banco Popolare, BPM, BPER, Creval, Popolare di Sondrio, Banca Etruria, Banca Popolare di Vicenza, Veneto and the Popolare di Bari.
Some trade unions have expressed concerns over Mr Renzi’s plans to reform the banks, which they argued, could result in the loss of jobs following mergers. President of the National Association of Credit Co-operatives and Rural Credit Unions, Alessandro Azzi said he would “read with interest” the texts of the decree but added that it would not affect on credit co-operative banks. Smaller mutual banks will not be impacted by these reforms either.
He has also called for reflection on European standards “designed to secure the banking system, designed for those big foreign banks that caused the crisis and that paradoxically heavily affect Italian banks, particularly small ones”.
Prime Minister Matteo Renzi said that Italy had a lot of banks but not enough credit available, especially for small and medium enterprises. This is not the case of credit co-operative banks. According to Mr Azzi, over the last two years, BCCs granted €6.3bn in loans to households and small and medium enterprises. He argued they were among the most capitalised banks with a core tier 1 capital ratio of 16%.