Ignazio Angeloni: Interview with Corriere della Sera

Interview with Ignazio Angeloni, Member of the Supervisory Board of the ECB, conducted by Federico Fubini on 10 July 2017 and published on 12 July 2017

Angeloni: One must, first of all, comply with the rules, because those who don’t, aren’t credible and don’t have the authority to propose changes. We must comply with them. Once one has shown the intention to make the system work, then it is possible to justifiably propose the right amendments so as to move forward, and perhaps even receive support.

The ECOFIN finance ministers and the European Commission seem to be more receptive to the idea of national “bad banks”. Is that your impression too?

The ECOFIN Council has an action plan with various elements. One concerns the way in which non-performing loans should be removed from balance sheets, via the market or national “bad banks”. If this process, based on a national bad bank, takes time, funding will be used in the interim. I think that the European authorities are showing a greater openness to the idea that public budgets should bear some of the burden. I have the feeling that there is a willingness to consider forms of state aid, assessing their compatibility with the conditions with which they have to comply as a consequence of EU rules. In particular, the rules on bail-in. But we are expecting to see the work of the Commission on this in the early autumn.

The government’s action concerning Popolare Vicenza and Veneto Banca, with guarantees given to Intesa Sanpaolo, has been controversial. Was it done in line with European rules?

Yes.

So the protests are inappropriate?

There’s no doubt about the literal correctness. From a substantive point of view, the Single Resolution Board decided not to intervene because there is no public interest. Then comes the discipline of state aid, which allows a national liquidation procedure involving state aid. And the state intervenes because there is a public interest, a separate one, relating to the regional economy. The conflicting logic is clear. It is something that should form part of the thinking on how to improve the rules and make them coherent.

How was it that you at the ECB initially declared the [two] banks in Veneto “solvent” and then, a few months later, said they were “failing or likely to fail”?

The declaration of failure on our part is subject to specific conditions. A bank must find itself unable or almost unable to meet its capital requirements or its commitments. The ECB must give the bank a reasonable opportunity to keep going. And months ago, when the two banks in Veneto requested government guarantees and precautionary recapitalisation, the ECB, on the basis of the most recent data available, deemed that the minimum conditions were met. The situation subsequently deteriorated even further.

Wouldn’t it have been better to put their backs to the wall one year ago?

What do you mean by “put their backs to the wall”?

Force the banks to find a solution.

Sorry, it is not our job to force the banks. There are some things we can do and others we can’t. If a bank is not on the point of becoming insolvent or losing its ability to operate, we can make our presence felt, but we cannot be disruptive. In spring last year, the situation was difficult, but there was a fund (Atlante), supported by the whole of the Italian financial system, which was committed to fundamentally restructuring the two banks.

Some people are saying that the state would not have had to mobilise €17 billion for two small banks if Europe had created an Italian “bad bank” in 2014 or 2015.

The cost of the action for taxpayers will be less than this amount if, as is likely, the liquidation of impaired assets yields significant amounts over time. As for the rest, let us look ahead. And let me ask you one thing: I hear many voices in Italy defending investors in bank bonds at risk in certain cases, but I hear few voices defending taxpayers. Don’t you think that taxpayers have already been sufficiently punished over the last 10or 15 years? The very purpose of the much maligned bail-in is to protect them.

Don’t you think that the cost would have been higher without an intervention?

Taxpayers pay on the assumption that these banks pose a systemic risk of a kind that would hit those same taxpayers even harder if no intervention took place. Maybe that’s how it is. In the meantime, however, they pay. For things they haven’t decided on, haven’t seen and haven’t checked. For things that are remote. The distance between taxpayers and the point where the mistake was made is certainly greater than that between investors in banking instruments and the problem. It’s time to create conditions to ensure that, in the event of a failure, the responsibility to pay lies first with those who invested in instruments issued by those banks, in accordance with the spirit of the rules that have been established.