11 October 2010

Il Sole: Italian small banks wrung out by Basel III

An analysis conducted by a consulting firm Oliver Wyman on the sample of 45 Italian medium-sized banks (with the total assets between 10 and 40 billion euro) and small-medium banks (500 million and 10 billion) answers how the sector is in line with Basel III.  

However, this sum is not definite. Basel III foresees also the introduction of a series of emergency buffers to absorb the possible losses in particular phases of the market. For example, the impact of the „countercyclical buffer“ could be as much as 3 billion euro (2.2 billion for the medium banks, 800 million for the small banks) in the worst case scenario, in which the minimal requirements should be increased by further 2.5 per cent. Of course, it is not certain that the countercyclical buffer will be applied by the Banca d'Italia to the small institutions that have demonstrated to be exemplary in the last years, but the doubt remains. 

Even if we put Basel III aside, the problems of the small banks remain on the table. For example, the sector has lost edge in the area the profitability. Return on equity has been lower than 5 per cent in one third of the analyzed sample, and many banks claim to have problems with economies of scale.