Italian banking lobby warns ECB of risk of attendance at board meetings

FLORENCE, Italy, Nov 21 (Reuters) – Italy’s banking lobby on Monday urged the ECB to consider whether its representatives could find themselves sharing responsibility for mistakes if they attend meetings of the bank’s board.

Italian Banking Association President Antonio Patuelli spoke about tensions between eurozone banks and European Central Bank supervisors at a banking seminar.

A recent letter from Societe Generale Chairman Lorenzo Bini Smaghi, according to a source familiar with the matter, aired complaints about the central bank’s excessive involvement in the day-to-day work of lenders, including attendance at meetings. from the administration board.

Bini Smaghi declined to comment on the matter.

Sources told Reuters that relations between the banks and the ECB, which assumed oversight of the sector less than a decade ago, are at an all-time low.

Regulators are frowning particularly at capital distribution promises that banking chiefs have made to investors, urging heightened caution ahead of an expected recession whose depth is still unclear.

“Some bankers are saying openly what they used to say in private,” Patuelli said when asked about the tensions.

“They’re just more open, but the reasons behind it are the same as they always have been.”

To complicate relations, the ECB has changed the terms on which it grants long-term loans to banks, depriving the sector of a source of risk-free profits at a time when consumers are grappling with a cost-of-living crisis. .

Patuelli said it should come as no surprise that Italian banks are buying fewer domestic government bonds as a result.

Speaking at the same seminar, ABI chief executive Giovanni Sabatini said ECB supervisors were concerned that banks were underestimating the necessary provisions against loan losses, as the support measures that Governments deployed against the pandemic have kept default levels artificially low over the past two years.

Historical data feeds into banks’ calculations of how risky the assets they hold and sources said the ECB is concerned that risk models fail to capture the threat posed by high inflation given that it is is a recent phenomenon.

Addressing the issue of ECB officials attending bank board meetings, Patuelli said it could get them in trouble if they were unable to stop what later emerged as wrongdoing. .

“A key legal principle is that not preventing something from happening is helping it,” Patuelli said.

“So I think it would be ‘prudential’ for the ECB not to send its representatives to board meetings, because if decisions were taken that turned out to be inappropriate and ECB supervisors failed to combat them quickly and effectively, it could cause problems for the BCE itself.”

speaking to an event organized by the Dutch central bank Last week, the ECB’s chief supervisor, Andrea Enria, said a physical presence was key to judging the effectiveness of boards of directors, which the ECB conducts a targeted review.

Enria said it could be useful for the banks themselves to have ECB representatives observe what happened at board meetings.

Reporting by Valentina Za, editing by Nick Macfie and Alexander Smith

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