May 11, 2016 – Il Sole 24 Ore published an editorial co-authored by SEP Senior Fellow Pietro Reichlin, in which he presents the two sides of the argument over bail-in regulations and offers some policy solutions. The position of the Bank of Italy is that Italian banks are solid enough, and it is the actions of European regulatory authorities that have increased market volatility. From this point of view, Italian banks are being unduly penalized for having a more traditional business model, with a concentration of assets in loans rather than investments. The opposite argument is obviously that these banks are fundamentally unstable, with holdings of non-performing loans far exceeding the European average. On top of that, they are overexposed to sovereign debt. These are crucial weaknesses that need to be corrected. In other words, European authorities are concerned about the long-term institutional viability of the Eurozone’s banking system, whereas Italian authorities place more importance on the potential destabilizing effect of required adjustments.
- The original article (in Italian) is available from Il Sole 24 Ore.