The Evolution of Italy's Banking System: A Critical Analysis of Privatization, Consolidation, and Reform

Strategic Insights -

Privatization and consolidation in the Italian banking sector have reshaped the industry since the early 1990s, leading to a significant decline in government influence. The state-controlled entities, such as the Istituto per la Ricostruzione Industriale (IRI), have sold off major banks, including Credito Italiano and Banco Commerciale Italiano. The resulting market is less concentrated compared to other EU countries, with Italian banks smaller in size and less internationalized. However, recent trends indicate a shift towards greater internationalization, with banks expanding into Eastern Europe, the Balkans, and Turkey. The Italian banking system has faced criticism for its handling of corporate debt and default issues, particularly in the cases of Cirio and Parmalat.

Key Takeaways:

  • Between 1990 and 2000, the Italian government sold off major state-controlled banks, including Credito Italiano and Banco Commerciale Italiano, reducing its influence in the sector to just 10% of deposits by 2001.
  • The privatization and consolidation of the banking sector in the 1990s led to a decline in the influence of Mediobanca, Italy's only private investment bank, which traditionally had close links with the country's business establishment.
  • Italian banks are significantly smaller in size and less internationalized compared to their European counterparts.
  • However, in recent years, Italian banks have begun to expand abroad, particularly in Eastern Europe, the Balkans, and Turkey, and are gaining a foothold in China.
  • The Banca d'Italia, which retains responsibility for the supervision and regulation of the banking sector, has faced criticism for its handling of corporate debt and default issues, including the Cirio and Parmalat scandals.
  • The Italian government has implemented reforms, including changes to the ownership structure of the central bank, a more collegial decision-making process, and shared responsibility with the competition authority for competition issues and mergers and acquisitions.
  • The appointment of Mario Draghi as the new central bank governor has cleared the way for a new wave of consolidation in the banking sector and the removal of barriers to entry of foreign banks.

Statistics:

  • 784 banks were operating in Italy at the end of 2005, down from 788 in 2004 and 814 in 2002 (COUNTRY BACKGROUND FROM THE ECONOMIST INTELLIGENCE UNIT).
  • By the end of 2001, the share of deposits managed by banks controlled by the government had fallen to 10% (COUNTRY BACKGROUND FROM THE ECONOMIST INTELLIGENCE UNIT).
  • Between 1997 and 2000, market capitalization grew from 30% of GDP to 69.7% (The Economist Intelligence Unit).
  • By the end of 2002, market capitalization had fallen to about 35% of GDP, but rose gradually to an estimated 47.7% of GDP in 2005 and 50.4% of GDP in the first quarter of 2006 (The Economist Intelligence Unit).
  • The overall index of the Milan bourse (Mibtel) fell by about 25% in 2001, mainly in the aftermath of the terrorist attacks in the US on September 11th 2001 (The Economist Intelligence Unit).
  • By the end of 2002, the Mibtel index had fallen by a further 23.5% (The Economist Intelligence Unit).

Sources:

  • COUNTRY BACKGROUND FROM THE ECONOMIST INTELLIGENCE UNIT, no date.
  • The Economist Intelligence Unit, no date.
  • The Economist Intelligence Unit, "Italy: Country profile", 2006.