MNI INTERVIEW2: Italian Banks Ready For Basel 3.1-Signorini

Italian banks are well positioned for the phasing in of the remaining elements of Basel III regulations by 2025 and new rules on risk weights should not reduce the flow of credit to firms, Bank of Italy Senior Deputy Governor Luigi Federico Signorini told MNI.

Banks have already boosted capital levels significantly during the course of Basel III, though remaining steps including the fundamental review of the trading book are crucial, said Signorini, pointing to how credit continued to flow during the pandemic, albeit with support from monetary and fiscal authorities. The ability of banks to withstand episodes of financial turmoil since 2020 has been “a vindication” of the Basel reforms, he said in an interview.

“This time banks have been part of the solution, not part of the problem,” said Signorini, who declared himself proud of his own work on the Basel Committee. In contrast, regulation of non-bank financial institutions has been “disappointingly slow so far,” he added.

INSURERS

Italy’s insurance industry is also in solid shape as rates rise, Signorini said. While volatility in Italian sovereign spreads saw their capital gains outweighed by losses in May for the first time in recent years, and their exposure to government debt has to be “carefully considered”, he noted that Solvency II rules also tend to reduce their liabilities in such conditions.

“In terms of market value, an increase in rates, especially of the risk-free rate, does not only affect assets, by lowering the prices of portfolio securities, but it also affects liabilities, by reducing the current value of insurance liabilities,” said Signorini.

Italy’s insurers, who reported an average solvency ratio of just under 240% at the end of June, slightly down from 2021 but well in excess of the regulatory minimum of 100%, are navigating market volatility better than their peers elsewhere in Europe, he said.

Signorini, though, said he was calling for tighter supervision of cross-border operations by insurers operating in other European Union member states, in order to guarantee consumer protection.