Italy: The Italian Banking System

The Italian Banking System is governed by the provisions of the Legislative Decree No. 385 of 1st September 1993, as amended and supplemented also recently by the Legislative Decree No. 342 of 4th August 1999 (the "Banking Law").

The Banking Law sets out provisions relating to:

• the credit authorities;
• the banks;
• the control on the banking business;
• the crisis of the banks and the banking groups;
• the other entities operating in the financial sector;
• the transparency of the contractual terms and conditions;
• the issuance of securities and the sanctions.

The Italian banking system is subject to the control of three bodies known as the Credit Authorities. These are the Treasury Minister, the Interministerial Committee for Credit and Savings - CICR (Comitato Interministeriale per il Credito e il Risparmio) and the Bank of Italy.

The main purposes of Italian banking regulations are the control of the management of regulated banks, the overall stability, the efficiency and competitiveness of the financial system and the enforcement of and compliance with banking legislation. CICR, which is composed of the Treasury Minister, who acts as chairman, and the other main economic ministers, has general powers in the regulation of the banking sector. It establishes the policies which the Bank of Italy must implement when adopting regulations applicable to banks. The Bank of Italy implements the policies laid down by the CICR by issuing regulations and directives applicable to banks, such as those relating to capital adequacy, risk exposure, participations, administrative and accounting organisation and internal controls. The Bank of Italy also grants the necessary authorisations, examines the reports, the balance sheets, the statistical data, and other documents which banks are required to file with the Bank of Italy on a regular basis, supervises the banking institutions through its own auditing body, and carries out inspections in the banks.

The Credit Authorities exercise their powers of control in accordance with the provisions of the EC by applying the regulations and decisions thereof and implementing the recommendations on credit and financial matters.

In addition to its supervisory and regulatory role, the Bank of Italy determines the discount rate, is the lending bank of last resort for Italian banks, is banker to the Italian Treasury and is generally in charge of implementing monetary policies. It also operates services for the banking industry as a whole, most notably a central information office of credit risk. The Bank of Italy has the responsibility for monitoring Italian money supply and interest rates. In order to control the money supply, the Bank of Italy principally uses open-market transactions in Italian Government securities, currency and securities repurchase agreements, and it has power to fix the discount rate and the rate on fixed-term advances. By injecting or absorbing funds through the purchase and sale, respectively, of Italian Government securities, providing Italian banks with ordinary and extraordinary advances and setting the rates at which such advances are available, the Bank of Italy may increase or decrease liquidity in the banking system.

The collection of savings from the public, and the extension of credit constitute banking business. The Banking Law specifically sets out the principle of universal bank pursuant to which any bank is authorised to carry out banking business as well as, with a few exceptions, any other financial activities, in accordance with its Bye-Laws, and any other business. In order to fund their business banks may issue bonds, convertible bonds and subordinated loans. The authorisation to carry out banking business is granted by the Bank of Italy which registers the Italian banks and the branches of EC Banks so authorised with a special Register. The granting of the authorisation is subject to certain requirements in respect of:

• the corporate structure;
• the minimum share capital amount;
• the program of activities;
• the specific qualifications of management and shareholders.

In accordance with the principle of reciprocal recognition provided for by the Second EC Banking Directive, and subject to certain requirements, EC Banks are permitted to operate in Italy, either through a subsidiary or directly from abroad, on the basis of the authorisation received from the competent authority in their home country. In particular, EC Banks may carry out in Italy those activities which are reciprocally recognised in the relevant EC country such as;

• collection of deposits and other funds with the obligation to repay the same;
• loans (including in particular consumer loans, mortgage loans,
• factoring, assignments of receivable with or without recourse,
• commercial loans including forfeiting);
• financial leasing;
• payment service;
• issue and management of means of payment (credit cards, travellers cheques, letters of credit);
• issue of guarantees;
• transactions for their own account on behalf of the clients
• relating to money;market instruments (cheques, promissory notes,
• certificates of deposit, etc.), currencies exchange, derivatives,
• securities;
• participation in the issue of securities and supply of the
• related services;
• consultancy;
• money broking;
• assets management;
• securities management;
• commercial information;
• rental of safety boxes; and
• any other activity which may be added to the list attached to the EC directive No. 89/646 of December 15 1989.

In case of establishment of the first Italian subsidiary of such EC Bank, the competent authority in the home country of such an EC Bank has to notify the Bank of Italy thereof; the subsidiary may start carrying out its business two months after such notification has been made. The competent authority of the country where the EC Bank is established must inform the Bank of Italy if such EC Bank intends to exercise any of the reciprocally recognised activities. Subject to EC laws and regulations the provisions set out above are applicable also to financial companies which have their registered offices in a member state when the controlling holding is owned by one or more EC Banks having their registered offices in the same state.

Banks established outside the EC are permitted to render their services in Italy either through a subsidiary or from abroad. The establishment in Italy of the first branch of a non-EC Bank is authorised by a Decree of the Treasury Minister in consultation with the Minister of foreign affairs after having heard the Bank of Italy and taking into account the condition of reciprocity.

The granting of the authorisation is also subject to the same requirements applicable to the Italian banks in connection with the minimum share capital and the qualifications of the management. Non-EC Banks may operate in Italy without a subsidiary subject to the previous authorisation of the Bank of Italy.

The prior authorisation of the Bank of Italy is required in order to acquire directly or indirectly any holding exceeding 5% of the share capital in a bank and in any event when the participation may secure the control of such bank.

Non-banking companies may not be authorised to acquire participations in a bank exceeding 15% of its share capital or in any event implying the control thereof. The Bank of Italy may deny or refuse the authorisation to such non-banking companies if the same are parties to agreements whereby they are granted the power to appoint or dismiss the majority of the directors of the bank.

Appropriate communication should be given to the Bank of Italy in respect of any agreement relating to voting rights and the Bank of Italy may exclude the exercise of such voting rights if it affects the correct management of the bank.

The Treasury Minister, in consultation with the Bank of Italy, requires certain standards of trustworthiness and professionalism in a person wishing to manage a bank or have a significant shareholding in a bank.

The Banking Law introduced also the banking group concept which may have two different structures:

an Italian holding bank controlling the banking, financial and instrumental companies; or a holding financial company controlling the banking, financial and instrumental companies.

The Banking Group is registered with a special registry held by the Bank of Italy.

Article 129 of the Banking Law governs the issues of securities and their offering in Italy.

As a general principle, issuance of securities in the amount not exceeding 100 billion Lire (Euro 50 million) having standard characteristics or Eurobonds, are not subject to any particular authorisation.

The Banking Law contain specific provisions for the procedures of extraordinary administration and compulsory administrative liquidation.

To assure the transparency of the terms and conditions of the various banking transaction, the Banking Law sets out specific provisions, applicable mainly to banks and financial intermediaries.

In particular, the rates of interest, the expenses for any notice to the clients, the prices and any other economic conditions to the offered transaction and services must be disclosed.

The Banking Law sets out specific provisions in connection with the agreements relating to banking transactions, which normally must be entered into in writing, the amendments thereto and the periodic information to be given to the client in connection therewith.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.