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Banking Union and Access to Credit to SMEs


The SSM: the entry into force of the Single Supervisory Mechanism (SSM), in few weeks, is the first step towards the setup of a Banking Union.

 It is crucial, since will impede unjustified domestic ring fencing practices and reduce coordination problems in relation to the application of prudential requirements. UniCredit welcomes this crucial step and proposes some further improvements: i) a review of the governance and voting modalities of EBA so as to facilitate its role as mediator between countries participating in the SSM and those that do not; ii) the definition by the ECB of parameters and guidelines with a view to make sure the exercise of macroprudential powers by national authorities is not used to secure national interests.

UniCredit strongly supports the quick establishment (by May 2014, the end of the current Parliamentary term) of a Single Resolution Mechanism (SRM), complementing the SSM and consisting of a truly independent European Authority and a privately financed Fund. With reference to the latter, duplication of resolution funds (at national and European level) needs to be avoided.The SRM will work on the basis of the rules set by the Banking Recovery and Resolution Directive (BRRD), which introduces harmonized measures for early prevention, recovery and resolution within the European Union. The BRRD shall also put an end to bailing out troubled banks with taxpayer’s money. The new approach is that a troubled bank that is failing will be resolved by requiring shareholders and creditors to bear the losses. We are optimistic that the current negotiations between the European Parliament and the Council will lead to a final agreement by the end of this year. In order to provide creditors with legal certainty we believe that the rules must be harmonized to a large extent, provide for a clear decision making mechanism on home-host issues and limit the possibility for national flexibility when national authorities have to decide which liabilities shall be excluded from bail in.

The credibility of a resolution mechanism requires that losses in excess are covered by a public fiscal backstop. In particular, the establishment of a backstop would also allow the recapitalization of banks should the need to do so result from the next ECB asset quality review and EBA stress test exercises next year. UniCredit supports the quick establishments of the ESM as a full fiscal back stop before the asset quality review and stress tests. This will contribute to: break the vicious circle between banks and sovereigns; improve banks funding located in peripheral countries, based on economic risk/reward criteria, independently from geographic location which will also result in more efficient lending conditions for the real economy.

A complete Banking Union needs further harmonisaton of rules to facilitate the task of the ECB as single supervisor. The entry into force of the CRD IV (next 1January) will be crucial. Further to this, it is important that the ECB  will develop a Single Supervisory handbook which will further harmonise the way rules are applied. This harmonisation of supervisory practices will avoid regulatory arbitrage and establish full level playing field.  Since the start of financial crises lending to SMEs was undeniably reduced. The European Commission Green Paper on Long Term Financing, addresses some issues to revive SMEs lending, including: i) increase SMEs access to capital markets; ii) promote the involvement of institutional investors in long term investments to SMEs; iii) introduce new securitisation instruments for SMEs and iv) standards for credit scoring assessments of SMEs.

In order to increase access to credit for SMEs at EU level, UniCredit proposes to: i) increase public guarantees granted by the public sector (European Investment Bank and European Investment Fund or European Structural and Investment Fund) for SME loans, including those for capital market transactions(e.g. through assumption of risk in synthetic securitisations such as the Tranched Cover); ii) ease existing European guarantees standards; iii) development of harmonised rules at EU level on the working of Business Networks (cross-border aggregation of SMEs); iv) development of a harmonized credit infrastructure providing loan-level information to investors and Credit Rating Agencies; v) avoid adoption of legislative proposals which would discourage access to capital markets by corporates (such as theFinancial Transaction Tax). These measures would contribute to: i) leveling the lending conditions for SMEs in “peripheral” countries, thereby restoring the transmission of monetary policy; ii) reduction of banks cost of risk (RWAs) and improvement of the asset quality of the new lending; iii) easier aggregation of different enterprises, with the purpose of fostering their internationalization; iv) easier access for SMEs to capital markets and diversification of credit risk for investors; v) no negative impacts for operations on corporate bonds, essential for growth; vi) Level playing field across EU in place of country-specific tax disadvantages.

The key words regarding Italy are “political stability” . According to latest estimates Italian political instability in these three last months could implicate costs for € 1-1,5 bln in terms of tax of interest. With Italy enduring its longest postwar recession, the difficulty for the Government is to balance political demands with the goal of meeting budget targets. This is even more important if we consider that the Eurozone is on the path of a good recovery. Signs of improvement in domestic demand come at a time when exports are regaining traction. Household sentiment has increased for nine consecutive months and is now close to its long-term average, indicating that the consumption recession is coming to an end .On the whole we have positive expectations (supported by the last data available) regarding Italian economy: Italy’s  GDP in the second quarter came better than our expectations, contracting by 0.2%, after -0.6% in the first quarter.  The GDP contraction stems from still falling activity throughout all sectors (industry, services and agriculture).After having increased slightly for two consecutive months, Italian industrial production surprised on the downside, in line with what we observed in other eurozone countries.

Encouraging indications coming from the last  PMI survey pointing to a good recovery in industrial new orders and in the new export orders. On the labor-market front, the unemployment rate fell back to 12% in July. The decline in the unemployment rate was a result of broad stabilization in employment and a slight increase in the number of inactive people. However, as employment lags real activity, we see this improvement as being short-lived and expect employment to contract in the coming few quarters. On the fiscal side, the cash deficit in the first eight months of 2013 was EUR 60.2bn, higher than the deficit recorded in the same period of 2012 (EUR 34.0bn). Until now, the underperformance of the cash deficit can be explained by several one-off factors, including re-payments of PA arrears. Therefore we continue to expect modest positive growth in the last quarter and an acceleration thereafter, fueled by strong support from foreign demand and a stabilization (and then recovery) in investment and consumer spending. 

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