MNI BRIEF: AT1 A Stability Risk; Small For Now-Bank Of Italy

The high volumes and trends of securitizations, AT1 bonds and certificates make that these three instruments “could currently be considered a potential threat to financial stability”, according to a regular assessment issued by the Bank of Italy on Friday.

Although the risk to financial stability “seem to be small for now” holders of certificates and AT1 bonds “could suffer significant losses” in an adverse scenario, noting that the growth in certificates –from EUR11 billion to EUR52 billion” is “fully attributable to retail investors”. Households represented the 70% of certificates holders.

On the other hand volumes of AT1 bonds do not appear to be high “in absolute terms” and the absence of these instruments among banks’ holdings “excludes any contagion risks relating to possible impairment losses”, the note says. AT1 bonds represent 8% of complex securities in Italy (EUR 25 billion) and the risk of these instruments seems to be contained.