Leading in to discussions at this Aspen Junior Fellows event was the observation that 2014 is the launch year for the European Banking Union, the product of what have been difficult compromises between the various countries involved after six years of financial crisis and two recessions. With the forecasts for Italy in this new year pointing to a modest and far from appreciable recovery in GDP growth, the conversation centered on what resources and strategies banks could put in place to bolster their position on the one hand, and support businesses and households on the other, during this phase of structural change for the Italian and European economies. There was an acknowledgement that the room for maneuver would appear to be very limited, given that loans are being affected by low credit demand for investment purposes, and, on the supply side, by high credit risk and the recessionary pressures being exerted on bank balance sheets. Lending to firms has also not yet benefited from the improvement in financial market conditions, dropping in Italy – in the three months ending November – by over 8 per cent on an annual basis, thus still representing a drag on recovery. [1]
The question was posed as to whether the universal banking model which emerged nearly a century ago continues to be viable, and if so, subject to what risks. While the banking system, in its many ramifications, has always played a pivotal part in the annals of Italian economic history, it was suggested that the sector has found it increasingly difficult to contend with the challenge presented by the mounting pace of change since the crisis of 2008. Technological innovation, for instance, necessitates an upgrade in distribution and product channels, with corollary effects on staff and the skills necessary to maintain competitiveness.
The participants noted that although Italy remains the second largest manufacturing country in Europe, Italian SMEs are still 90% reliant on bank lending as a source of finance (as opposed to alternatives such as the mini-bonds). It was nonetheless recognized that one of the key roles of the banks is to support the internationalization of the country’s enterprises on the one hand, while on the other fulfilling a local community outreach role, drawing on the widespread territorial coverage of banking networks, which represent a boon for the country. Italy’s southern regions were cited as an area of particular interest in this regard, presenting an opportunity to be seized on various fronts, including in terms of the potential for expanding bank offerings.
In conclusion, it was remarked that in the 140th year since his birth, the words of Luigi Einaudi – setting out the service challenge that banks must be able to rise to – still hold true: “Banks are not made to pay salaries to their employees or to close their books showing a profit; they must achieve these worthy aims but only in serving the public as best as possible.” [2]