Daniele Marazzina

(PhD) è ricercatore presso il Dipartimento di Matematica del Politecnico di Milano. I suoi principali interessi di ricerca sono: strategie ottime di investimento e ritiro dal mondo del lavoro, metodi numerici per la valutazione di derivati, e strategie ottime di investimento in presenza di costi di transazione.

Lug 262017
 

Sta per cominciare il nuovo MOOC “Finanza per Tutti”, in partenza dal 31 luglio 2017, in italiano, della serie “For Citizens”:

https://www.pok.polimi.it/courses/course-v1:Polimi+FinPerTutti101+2017_M8/about
[link attivo dal 31 luglio 2017]

La finanza è ormai parte integrante della vita quotidiana. L’apertura di un conto corrente, decidere come investire i propri risparmi, la necessità di chiedere un prestito o un finanziamento… Lo scopo del corso è quello di fornire tutti gli strumenti necessari per affrontare queste (e altre) scelte, avendo ben chiari quali sono i possibili rischi e le insidie che ci si può trovare a fronteggiare.

Il corso è stato realizzato da Politecnico di Milano in collaborazione con Altroconsumo.

Giu 282017
 

Il  27 giugno 2017, ore 16.00, si è tenuto il quarto evento del Polimi Fintech Journey

Distributed Ledger Technology e capital markets

Attraverso i link qui sotto riportati potete scaricare le presentazioni dei relatori

  1. Carlo Ferè (Banca Monte dei Paschi) – DLT e Correspondent Banking
  2. Paolo Gianturco (Deloitte consulting) – Distributed Ledger Technology e Capital Markets
  3. Massimo Morini (Banca IMI) – Blockchain and Derivatives
  4. – Sebastiano Scrofina (EarlyMorning Finance) – “DLT” and capital markets:an agnostic approach

Discussant:

  1. – Francesco Bruschi (Politecnico di Milano)

Il prossimo evento sarà il 26 Settembre 2017. Per informazioni ed iscrizioni: www.mate.polimi.it/fintech

Giu 152017
 

28 – 06 – 2017 | 18:00

Ti invitiamo all’evento di presentazione dell’VIII Edizione del Percorso Executive in Finanza Quantitativa che inizierà a Ottobre 2017, dove il Direttore, Prof. Emilio Barucci, presenterà il programma e le caratteristiche del corso.

Avrai la possibilità di visitare la nostra Business School e confrontarti con il Direttore, un ex Alumnus e il Recruitment Staff. Durante la presentazione, interverrà anche il Dott. Gianni Pola, Head of Systematic Strategies & Quantitative Research, Multiasset, ANIMA SGR nonché parte della Faculty.

La serata si concluderà con un aperitivo di networking.

Per ulteriori informazioni ed iscrizioni all’evento, clicca qui

Per dettagli sul Percorso Executive, clicca qui

Giu 062017
 

Il  31 maggio 2017, ore 16.30, si è tenuto il terzo evento del Polimi Fintech Journey

Applicazione della network analysis ai mercati finanziari 

Attraverso i link qui sotto riportati potete scaricare le presentazioni dei relatori

Relatori:

  1. Michele Tumminiello (Università di Palermo)
    Analisi di rete di dati massivi: comportamento criminale e identificazione di potenziali frodi
  2.  Claudio Tebaldi  (Università Bocconi)
    Il finanziamento delle reti di imprese
  3. Paolo Giudici (Università di Pavia)
    Network models to improve credit risk measurement

Discussant:

  1. Francesca Ieva (Politecnico di Milano)
  2.  Michele Bonollo (Numerix)

Il prossimo evento

Distributed Ledger Technology e capital markets

si terrà martedì 27 Giugno 2017. Per informazioni ed iscrizioni: www.mate.polimi.it/fintech

Mag 082017
 

Secondo workshop del Polimi Fintech journey

2 maggio ore 16.00

Bitcoin ha portato alla ribalta il tema della moneta virtuale. Una moneta che per natura potrebbe collocarsi fuori dal controllo dell’autorità monetaria e quindi fuori dalla tradizione che associa il diritto di battere moneta alla autorità statale. Lo sviluppo di una moneta virtuale pone problemi nuovi sia in termini di stabilità monetaria che di funzionamento del sistema finanziario e del sistema dei pagamenti.

Relatori:

Discussant:

  • Alberto Mingardi (Istituto Bruno leoni)
  • Lucio Gobbi (Università di Trento)

Prossimo evento: martedì 31 maggio 2017, ore 16.30
www.mate.polimi.it/fintech

 

Apr 202017
 

Primo Workshop del Polimi Fintech Journey (in collaborazione con l’Osservatorio Crowd Investing del Politecnico di Milano)

20 aprile ore 16:00

Le nuove tecnologie e lo sviluppo di mezzi di comunicazione/interazione quali i social networks rischiano di ridefinire in modo significativo il ruolo degli intermediari finanziari andando ad agire su uno degli elementi che sono all’origine stessa dell’intermediazione: l’asimmetria informativa. Diverse startups si collocano su questo solco costruendo piattaforme che possono sostituire forme classiche di mercato nel mondo del credito, dell’equity e delle assicurazioni.

Relatori:

Discussant:

  • Pasquale Munafò (Consob)
  • Alessandro Lerro (AIEC)

Prossimo evento: martedì 2 maggio 2017, ore 16.00 www.mate.polimi.it/fintech

Mag 102016
 

The Dipartimento di Matematica of the Politecnico di Milano, in
cooperation with the Bachelier Finance Society and Springer, is proud
to announce the Nicola Bruti Liberati Prize 2015 winner:

Marko Hans Weber
Associate at JP Morgan in London
PhD in Financial Mathematics at Scuola Normale Superiore di Pisa (part
of the research has been conducted at Dublin City University).

On May 31, 2016, 12.30, the prize winner will deliver a lecture on

Models of Dynamic Trading with Price Impact

at the Politecnico di Milano – Dipartimento di Matematica
Conference Room (7th Floor)
Via Bonardi 9 – Milano

Dic 162015
 

Il recente salvataggio di Banca Marche, Popolare dell’Etruria e del Lazio, CariFerrara e CariChieti ha sollevato un acceso dibattito tra Banca d’Italia e Commissione Europea. Quest’ultima è accusata dalla Banca Centrale di aver ostacolato soluzioni alternative che attraverso il Fondo di tutela dei depositi avrebbero permesso di non intaccare le passività bancarie. Nella stessa direzione vanno anche le rimostranze avanzate dall’Associazione Bancaria Italiana e dall’associazione che rappresenta le Fondazioni bancarie e le casse di risparmio (ACRI). In particolare le Fondazioni, principali azioniste delle banche coinvolte dal crack, confidavano nell’intervento del sistema bancario, a sua volta fortemente influenzato dalle stesse Fondazioni, che avrebbe permesso di salvaguardare anche i loro interessi. Il fatto che la Commissione si sia opposta a una simile soluzione va giudicato quindi con favore: se si vuole evitare che in futuro si ripetano crack bancari è fondamentale far pagare le crisi a chi ha avuto le maggiori responsabilità in termini di mancato controllo, come appunto gli azionisti, avendo tra l’altro, in precedenza, tratto giovamento dell’eccessiva assunzione di rischi. Sul piano di salvataggio coordinato dalla Banca d’Italia andrebbe fatta in ogni caso più luce. Quali conseguenze ci sarebbero state nel caso di un’applicazione totale del meccanismo del bail-in? Quali e quanti piccoli risparmiatori sarebbero stati coinvolti? Quali sarebbero state le perdite per il sistema bancario?

Secondo le statistiche relative a ottobre 2015 dei 620 miliardi di euro di obbligazioni bancarie in circolazione oltre 210 miliardi risultano essere state sottoscritte da altri istituti di credito nazionali. In altri termini, un terzo dei bond bancari sono stati acquistati da altre banche. Nel caso in cui il piano di salvataggio avesse colpito anche gli obbligazionisti ordinari il sistema bancario avrebbe molto probabilmente dovuto affrontare perdite non trascurabili. Altre perdite sarebbero potute derivare dalla rettifica di valore dei depositi interbancari con durata superiore alla settimana, altra tipologia di crediti potenzialmente aggredibile nel caso di applicazione del bail-in.

La questione di quali perdite il sistema bancario avrebbe dovuto subire nel caso di applicazione integrale del bail-in è importante anche per valutare l’equità del decreto di salvataggio varato dal Governo. L’intervento del Fondo di Risoluzione ha infatti determinato un esborso per le banche pari a 3,6 miliardi di euro. Di questi 1,8 miliardi sono andati a ricapitalizzare le nuove banche, somma molto probabilmente recuperabile dalla vendita sul mercato dei quattro istituti. Altri 1,7 miliardi sono serviti a coprire le perdite legate alla svalutazione dei crediti, mentre 140 milioni sono serviti alla dotazione di capitale della bad bank destinata a gestire le sofferenze. La perdita sui crediti è però puramente potenziale: i crediti in sofferenza sono stati infatti svalutati dell’83%, contro una media pari al 59% per l’intero sistema bancario (Banca d’Italia, 2015, Tavola a13.14).   Non va quindi escluso che vendendo sul mercato i titoli in sofferenza, la bad bank riuscirà a trarne profitto, profitto che verrebbe poi rigirato al Fondo di risoluzione. In definitiva, dal salvataggio al di fuori della procedura del bail-in il sistema bancario ha evitato di subire perdite certe dalla svalutazione dei bond ordinari e dei finanziamenti interbancari erogati alle quattro banche fallite, sostituendole con delle perdite soltanto potenziali, a cui vanno aggiunte le perdite effettivamente sostenute sui titoli azionari e le obbligazioni subordinate detenute.

A queste considerazioni si potrebbe obiettare che nel caso di applicazione integrale del bail-in ci sarebbero stati contraccolpi sulla stabilità del sistema bancario, determinando il contagio anche a banche sane. Ma se questo è vero significa che anche dal fallimento di istituti di credito medio-piccoli possono scaturire conseguenze sistemiche. Ciò dovrebbe indurre a rivedere il primo pilastro della Banking Union, affidando interamente alla BCE il compito di vigilare sull’intero sistema bancario, e non solo sulle banche di maggiori dimensioni (Milani, 2015).

Su tutti questi aspetti servirebbe una maggiore chiarezza, e il fatto che Consob non abbia il potere di avanzare domande sul piano di salvataggio certo non aiuta (si veda l’intervista di Giuseppe Vegas su il Corriere della Sera del 14 dicembre 2015). La trasparenza nei piani di salvataggio è infatti un requisito fondamentale se si vuole evitare, da un lato, di generare il panico in alcune tipologie di investitori (quali gli obbligazionisti subordinati), e dall’altro determinare un senso di sicurezza verso altre forme di investimento. Quest’ultimo aspetto si ricollega a un’altra critica sollevata dalla Commissione, ovvero l’eccessiva diffusione di strumenti rischiosi e opachi presso i piccoli risparmiatori, che tra l’altro ha indotto la Banca d’Italia in un qualche mea culpa sul fatto di non aver limitato la diffusione delle obbligazioni subordinate presso i piccoli risparmiatori. Al riguardo bisogna ricordare come il possesso di obbligazioni bancarie da parte delle famiglie sia un fenomeno tutto italiano. Lusignani (2010) evidenzia come, subito dopo lo scoppio della crisi finanziaria,  i bond bancari pesassero per oltre il 10 per centro del totale delle attività finanziarie delle famiglie italiane, contro l’1 per cento della Spagna e incidenze pressoché nulle in UK e Francia (grafico 1).

Grafico 1. Peso delle obbligazioni bancarie sulle attività finanziarie delle famiglie (in %) .Fonte: Lusignani (2010).

 

 

L’eccessivo investimento in obbligazioni bancarie in Italia è spiegato essenzialmente da due fattori. Il primo è la generale insufficiente cultura finanziaria degli italiani (Nicolini, 2014, Gentile, Linciano e Soccorso, 2015). La scarsa conoscenza induce i risparmiatori ad affidarsi, quasi ciecamente, a terzi soggetti per prendere le loro decisioni finanziarie. E qui sta il secondo problema: la rete distributiva di prodotti finanziari è controllata quasi completamente dal sistema bancario, da cui scaturisce un evidente conflitto di interessi. Grasso, Linciano, Pierantoni e Siciliano (2010) mostrano come il rendimento offerto dalle obbligazioni bancarie, a parità di condizioni (ad es. durata finanziaria e tipologia di tasso), sia mediamente inferiore a quello dei titoli di Stato, strumento certamente meno rischioso dei titoli bancari (grafico 2). In definitiva, una rete di vendita non indipendente sarà indotta a fare più l’interesse della banca piuttosto che quello del risparmiatore, minando però a lungo andare il rapporto di fiducia tra banca e cliente. Purtroppo né il vigilante né il legislatore hanno favorito in questi anni la nascita di una vera consulenza finanziaria indipendente. Al riguardo è interessante notare come nell’attuale dibattito parlamentare si stia proprio discutendo di riformare l’albo dei promotori finanziari, anche se la linea che sta emergendo non sembra essere favorire la trasparenza e l’indipendenza della consulenza, quanto invece cercare di mantenere lo status quo del sistema bancario nazionale. L’approccio italiano, così come quello europeo più in generale, non sembra essere simile a quello inglese dove, già a partire dal 2013 e nell’ambito della Retail Distribution Review, ogni intermediario è tenuto a dichiarare se opera in modo indipendente dalle case di gestione, per cui la sua parcella deve essere pagata dal soggetto che riceve il servizio, o, viceversa, se riceve degli incentivi per la vendita di prodotti finanziari specifici.

 

Grafico 2. Indici di total return delle obbligazioni bancarie a tasso fisso e dei BTP (1.12.2006=100). Fonte: Grasso, Linciano, Pierantoni e Siciliano (2010).

Inoltre, la scarsa presenza di una consulenza finanziaria ha costituito anche un ostacolo alla diffusione di canali alternativi per il finanziamento delle imprese, soprattutto di media e piccola dimensione, che quindi negli anni hanno dovuto fare quasi esclusivo affidamento al credito bancario (Milani, 2015).

 

Riferimenti

–          Banca d’Italia (2015). Relazione annuale per il 2014.

–          Gentile M., N. Linciano e P. Soccorso, 2015, “Gli investimenti poco consapevoli delle famiglie italiane”, FinRiskAlert.it

–          Grasso R. , N. Linciano, L. Pierantoni e G. Siciliano (2010), “Le obbligazioni emesse da banche italiane. Le caratteristiche dei titoli e i rendimenti per gli investitori”, Quaderni di Finanza Consob.

–          Lusignani G. (2010), “Il posizionamento strategico dell’industria finanziaria italiana”, mimeo.

–          Milani C. (2015), “Alle radici della crisi finanziaria. Origine, effetti e risposte”, Egea Editore.

–          Nicolini G. (2014), “La cultura finanziaria degli Italiani”, FinRiskAlert.it

 

Dic 162015
 

Executive Summary: With the recent BCBS paper no.325 a new consultative session started, concerning a deep review to the CVA capital charge, that was introduced with the CRR (Basel 3) regulation. This revision aims to improve the CVA calculation with respect to the forthcoming fundamental review of trading book (FRTB), and to have a more risk sensitive approach for the standard approach. Nevertheless, in this first formulation some points are not well clarified or solved. In the paper a short review with some highlights about the new framework. Due to the technical complexity, some other points will be described in a second part of the paper.

 

1 The CVA Capital Charge. The Origin

In the Basel II regulation most of the effort was devoted to set the internal model for the credit risk and (IRB) and to define the new capital charge for the Operational Risk.

Despite the relevant improvement to the old Basel I regulation , the regulation was still weak for two main reasons

  • Some building blocks, e.g. risk sources to be faced by the banks with their own capitals, were still forgotten
  • Some discrepancies (or arbitrage tricks) were not removed. More explicitly, the inclusion of a position in the banking book vs. the trading book or its asset type (e.g. bond vs derivative) allowed some “unfair” differences in the capital requirement calculation.

For this reason the Basel 2.5 and Basel 3 regulations attempted to solve the above issues by introducing the new IRC (Incremental Risk Charge) and CVA (Credit Value Adjustment) building blocks. See [2], [3], [4] and [5].

The IRC, mainly for the bond positions, implies a capital charge for the downgrade and default risk. The CVA requires a capital requirement for the positions in OTC derivatives due to counterparty downgrade. In this way the huge unrealized (and unexpected losses) of the derivatives positions must be covered by the capital. After the 2008 crisis many banks were closed to default because the own funds were not enough to face this kind of losses. Let us recall that the fair value principle of the accounting standards obliges to include in the book evaluation also the counterparty credit quality.

Finally, by these innovations, bonds and OTC derivatives are subject to the same building blocks:

  • Default risk, respectively IRC and CCR
  • Downgrade risk, IRC and CVA
  • Market risk.

 

2 The CVA current review. Purposes and Contents

In July 2015 the Basel Committee issued the consultative paper 325, see [1], concerning the revision of the credit value adjustment.

The main purposes can be summarized as follows:

  1. To capture all the risk factors in the CVA capital charge. The most relevant point here is to take in to account also the market risk factors that can affect the future value of the exposure. This is also due to the practices in the market, where also the CVA hedging deals are sensitive to these market factors
  2. To be compliant with the accounting principles. More specifically, the future exposure should be calculated with a market implied calibration of the parameters (i.e. underlying volatility) with a risk neutral approach. This is a strong new perspective, as currently in the CCR framework for the EAD estimation in the internal models the market calibration is not required.
  3. Alignment of the CVA to the new market risk framework. We refer mainly to the use of sensitivities, risk factors taxonomy and so on.
  4. A more risk sensitive approach for the non internal calculations.

A 3-levels hierarchy of possible approaches was stated in this draft version of the paper, namely:

  • FRTB-CVA framework, that splits in:
  1. IMA-CVA = Internal model approach
  2. SA-CVA = Standardized approach
  • Basic CVA framework

The last approach is eligible for the banks that are not able to match the FRTB requirements or have not enough resources to implement such a project.

3 The new framework critical points. Part I

We contributed to the first consultative session, see [6]. In this section we highlight a first set of issues that in our opinion are not solved in a satisfactory way. Further point will be dealt with in a second part of the paper.

3.1 The CVA Hierarchy

We appreciate the effort of the Committee to differentiate the approach for the CVA capital charge, in order to take in to account a proportionality approach, section 2 of the Consultative paper. Here for proportionality we mean both the complexity/size of banks OTC book and their internal capabilities.

Nevertheless, we do not understand completely the rationales for the suggested hierarchy, mainly referred to the Basic Approach. In fact:

  • To compute a rough sensitivity with respect to the spread of the counterparty is not so difficult. Many banks adapt in some way for such a task their pricing libraries.
  • Moreover, small and medium banks very often have plain interest derivatives with their corporate customers. Hence, the future dynamics of the exposure and the interaction between credit risk factors and market factors may be faced by usual mathematical tools
  • On the other hand, the very hard problem is not the sensitivity, but the sensitivity with respect to what. In other words, the counterparties may be illiquid, and the proxy of it to any index is still an open issue. The section C of the Annex, point 103, addresses only partially this issue, since it is just a judgmental calibration of the involved market parameters. An “implied” market calibration is very difficult to perform.
  • Finally, the basic approach seems not to be coherent with the recent strategy for the other capital charge building blocks. We recall that in the new standardised approaches for the CCR (paper 279) and for the market risk FRTB (paper 305), the goal is to have more effective models, i.e. to make them more risk sensitive and more “granular” in the risk factors treatment. Also for the Operational Risk (paper 291) the “basic” approach, i.e. the BIA based on just the gross income risk driver, will be replaced by a new more sophisticated set of exposure indicators.

To summarize, for the above specific reasons and for a coherency principle, we find that the Committee should wonder about the taxonomy, in particular on the effective needing of a basic approach.

 

3.2 Regulatory vs. Accounting standard

The consultative paper definition of the CVA tries to fill the existing gap between the regulatory and accounting CVA. This will lead to a greater consistency of the risk assessment determined by the Basel rules and the accounting measuring of the CVA metric.

One of the differences that will remain, even with the new framework proposed in the paper, is the treatment of the DVA (see par. 1 and 13), which is excluded in agreement with  all the most recent Basel regulation, and which is on the contrary recognised by the new accounting principles, namely IFRS 13. We recall that the DVA, debt value adjustment, allows to the banks to apply an adjustment (to decrease the fair value) to the debt positions (i.e. OTC derivatives in sell side of the portfolio) due to the credit quality their own credit quality.

We believe that the current regulation is following the right route in excluding from the CVA the DVA, i.e. in considering only the unilateral CVA: we think this is right not only under a prudential point of view, but also under a sound financial perspective. Actually, it has been proved in some research papers (see for example Castagna [7], [8]) that the DVA can be replicated under very strict conditions hard (although not impossible in principle) to implement in practice. But even conceding the actual possibility to replicate the DVA, it can be shown that its accounting at a counterparty netting-set level largely over-estimate the limited liability protection that shareholders have.

Hence, the choice to exclude the DVA is reasonable but it is not just prudent, contrasting the accounting principles laid down in the IFRS 9. These principles rely on the false premise that a derivative contract has an “objective” value that is independent from which of the two counterparties it is evaluated, even if this objective value contains elements that belong to both counterparties, namely the adjustments for the credit risks of both of them. This premise paves the way to an exact symmetrical evaluation of the two parties that is quite nice under an accounting point of view, since it makes the evaluation principles in theory perfectly complying with general accounting principle of the “fair and true view”, but it can be hardly justified as far as the other general principle of “prudence”.

We think that both the regulatory and accounting prescriptions can be fulfilled if banks allocate a provision equal to the DVA any time a variation of the DVA is added to valuation of the derivative portfolio. In this case, all the gains coming from the DVA’s increase would be neutralized, since they would be offset by a parallel increase of the provision, and the other hand when the DVA collapses to zero as the trade expires, the loss would be compensated by a reduction of the reserve. In the end, the DVA would be fairly represented in the valuation of the derivative portfolio, yet it would not add to the bank P&L and it would be recognized simply as a cost at inception and gradually split on the years of the portfolio’s duration. The allocation of the provision does not require any change in the accounting principles, because it adheres in any case to the overarching “prudence” principle.

Banks would be incentivized not to start any hedging activity of the DVA, since the allocation of the provision would create P&L volatility if the bank tried to start a hedge. The possible complaints that the regulation does not match the accounting principles would thus be addressed.

References

[1] Basel Committee on Banking Supervision (2015), “Review of the Credit Valuation Adjustment Risk Framework “, available at http://www.bis.org/bcbs/publ/d325.htm

[2] Basel Committee on Banking Supervision (2014), “Basel III summary Table”,       http://www.bis.org/bcbs/basel3/b3summarytable.pdf

[3] Basel Committee on Banking Supervision (2014), “Basel III Phase-In Arrangements”, http://www.bis.org/bcbs/basel3/basel3_phase_in_arrangements.pdf

[4]  Basel Committee on Banking Supervision (2009), “Guidelines for computing capital for incremental risk in the trading book”, available at http://www.bis.org/publ/bcbs159.htm

[5] EU (2013), “Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms”.
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:32013R0575

[6] Bonollo M. And Castagna A. (2015), “Comments to the Consultative paper Review of the Credit Valuation Adjustment Framework “, available at http://www.bis.org/bcbs/publ/comments/d325/iason.pdf

[7] Castagna A. (2012) “On the dynamic replication of the DVA: Do banks hedge their debit value adjustment or their destroying value adjustment?” Iason research paper.
Available at http://iasonltd.com/resources.php

[8] Castagna A. (2012) “On the impossibility to replicate the  DVA”. Risk, November.

Nov 182015
 

1. Summary

The purpose of this article is to provide a first assessment of the impact of the new European Single Supervisory Mechanism (SSM) – mainly in terms of organisational structures and operational practice – on the way banks are organizing and managing their relations (and communications flows) with their regulators, both European and national.

In particular this article intend to assess the abovementioned topic from the point of view of who, in the banking organisation, is statutorily involved in the secretariat tasks, therefore with a holistic, balanced and super partes view of the organization that doesn’t necessarily focus on peculiar risks or control issues.

The article starts with a brief introduction of the new SSM framework, followed by the description of the new rules, tasks, and paths adopted by banks to interact with the European regulator and its “operational arm”, the JST (Joint Supervisory Team). Then, two different organisational answers and examples of their application are introduced, with some pros and cons.

In conclusion, the article deals with some comments about the expected future evolution of the bank-supervisors relationship.

 

2. Introduction of SSM

The SSM is the new European supervisory banking system, one of the main component of the banking union framework, that came into force on November 4th 2014 primarily with the aim of contributing to the safety and soundness of credit institutions and the stability of the European financial system and to ensure consistent supervision.

Inside the SSM the JSTs operate, which consist of European Central Bank (ECB) and National Competent Authorities (NCA) personal staff managed by an ECB coordinator. Their aim is – under the condition of maintaining proximity and close contact with the banks – to deliver the ongoing supervisory activities in the context of a level playing-field paradigm (reducing national discretions) and with a proportional scope.

The structure of JSTs (and of the specialized technical services that, with the relevant networks of experts at the NCAs, continuously support JSTs daily activity) combines the deep specific knowledge of national supervisors with the broad-ranging experience of the ECB.

Specifically, the double skilled teams (national backgrounds within European common rules and procedures) have assessed the reactivity of the supervised banks on several fronts: Supervisory Review and Evaluation Process (SREP) process and Capital decisions, on-site inspections (especially with regard to model validation and updating), business model analysis and sustainability, risk corporate governance, recovery and resolution plans, different exercises (AQR, Stress test, Transparency exercise) and questionnaire filling focused mainly on credit, market, liquidity and operational risk issues.

The advent of the new regulator and the involvement of professionals from the different NCAs, the application of the best practice approach in designing and performing the supervisory tasks, the implementation of new IT tools (emails security protocols) and the use of the English language in formal communications, all this reveals a huge compliance and organisational effort to implement and deliver a cultural evolution (and, in some cases, revolution), with important consequences especially for the national players with little or no experience at all in managing banking activities in an international prospective.

 

3. New rules, tasks, ways of interaction for banks and instruments involved

The newborn regulatory system is forcing banks to upgrade their internal control, monitoring and compliance systems in terms of interfaces, rules and procedures, to cover the new European institutions needs and their legal provisions.

Focusing on some examples taken from real life, one area of interest is related to the updating and tracking of all the regulatory information that the different banking expert areas (e.g. Risk Management, Audit, Credit, Finance, Organisation) need to be aware of and apply in order to be fully compliant with the European regulation: specifically and in terms of activities, it consists in identifying, analyzing, recording, organizing and disseminating within the organisation rulebooks, technical standards, operational regulation, Q&As issued by the regulators (often Compliance issues).

Another important issue is the management of daily information requests, details and explanations about management decisions, the filling of questionnaires and financial and capital data reports or the tracking and finalisation of the follow-ups; these requests represent a constant and considerable effort in order to inform and update managers and internal and statutory committees about the most sensitive and strategic topics (Daily Supervision Management issues).

Banks have also to face the consequence of the level playing field attitude – in terms of conduct rules and practices – that the new Supervisors are applying in interacting with all the European banks. The reference here is to the interaction of different cultural and behavioural models, i.e. a strong direct approach instead of a more formal and indirect way of communication, the different sensitivity in the use of the English language and a cogent analytical approach instead of a more comprehensive and synthetic one (Cultural issues).

Taking into consideration the Italian situation, a full one year experience under the new supervisory system has showed that banks have had to cope with a more in-depth and “challenging” way in approaching the supervisors, with the JST’s members taking part in the board of directors meetings, the increased quantity and quality of data requests and analysis and the wider range of units involved in the data management, the use of direct interviews and peculiar exercises, all of this causing ad increasing workload in order to meet the deadlines.

In order to perform all the different tasks, banks have started to develop and implement new instruments, tools and skills (like the ones related to PMO and Data management activities), such as the:

  • checklist, to manage SREP Assessment and the related Gap master plan;
  • log system, to track and manage feedbacks-follow ups;
  • internal tableau, to report to internal stakeholders (Board of directors, Risk Committees, Top managers);
  • regulatory DB, for statistics, legal provisions, regulatory internal culture, official report flow I/O;
  • portal/e-mail/database system, to circulate the new knowledge;
  • track records system, to store and consult the documentation shared with the regulators in a prospective view;
  • internal communication protocols, in order to better align Supervisors and Bank views.

In using these instruments and tools, banks often need to minimize the inefficiencies related to the duplication of information flows, originating from the ongoing – but not yet completed – integration of the newborn ECB standards and the still operating NCAs ones.

In the meantime, banks are assessing and implementing different organisational mechanisms in order to better manage and coordinate relations, communications and documentations with the SSM bodies.

 

4. Different organisational answers: one single access point option vs. coordination mechanisms option

In this context, two organisational and operational alternatives have been identified: the “one single access point option” and the “coordination mechanisms option”.

The first option (one single access point option) is the establishment of a new distinctive unit, a sort of “coordination and controlling room”, whose mission is to manage in a structured and unified way all the relations and “in & out” communication flows between the bank and the supervisory authority, with a direct and intensive role in managing (assembling and checking) the documentation and the databases that support the regulatory interactions.

This new unit could be independent from the existing internal control and operating functions, e.g. positioned in the General Secretariat or in the Legal and Corporate Affairs Department or in staff position with the General Director (even reinforcing existing units with experts from other departments) or – otherwise – it could be organized applying a risk based approach, therefore, locating the new unit within the Risk Management Department (the most affected area of the bank, especially with regards to banks authorized to use internal risk models for regulatory purposes) or the Internal Audit Department (the official institutional interface with the local regulator in accordance with Italian law and Banca d’Italia long lasting practice).

The second option (coordination mechanisms option) requires the definition of an internal framework of provisions (managerial and operational processes and procedures) through which the main actors involved (Risk Management, Internal Audit, Credit, Organisation, Finance) mutually interact and communicate with the authorities in a coherent and standardised way. This option is strictly dependent on the human resources and their backgrounds and, very often, it requires the involvement of a senior reference manager as a sort of high level operative interface between top managers / directors and supervisory bodies’ heads, especially during the on-site inspections.

The two options, that represent reference points to take into consideration in developing the best organisational solution with regards to each specific bank, have a common denominator: in selecting the head of the new unit, namely the Head of Supervisory Affairs (first option) or the reference manager (second option), banks are focusing mainly on senior managers and/or executives with international background and, very often, with previous relevant experience in working for banking or market regulators or supervisors.

 

5. One single access point option: how to implement it, its pros and cons

The essential requirements of the “access point” unit are (i) the direct access to the top managers, (ii) its variegated pool of skills and competences and (iii) the authority to commit the main involved bank departments in coping with the Supervisors requests accordingly with the set deadlines.

Due to the strong peculiar powers of this unit, a strict, severe and punctual control should be exercised by an independent committee (i.e. the Risk Committee of the Board of Directors). There is also a serious remark of trustworthy in the staff appointed in the new unit in order to align – as much as possible – Top Managers and Supervisors view about the bank.

This new unit could be positioned in different points of the bank’s organisation, such as:

  • under the Risk Management or the Internal Audit Departments: this solution ensures the effectiveness in managing the technical flows of requests coming from the ECB, thanks to the direct ownership and knowledge of risk and capital databases and their ability to interact with regulators on technical and regulatory topics. Moreover, the CRO role in facilitating an effective interaction between the Board and the senior management team on core risk culture and governance topics, makes this actor a natural choice as the supervisor of the new unit. Conversely, this solution could be sub-optimal from the point of view of the institutional and political dimension of the regulatory relationship. Furthermore, the direct involvement of an internal control unit could be translated into a very focused approach on specific profiles or priorities (the ones identified during the ordinary activity), lacking in this way the benefits of a more comprehensive approach over the bank;
  • under the Segretariat or the Legal and Corporate Affairs Departments: this solution leverages the existing skills, instruments, IT communication systems and practices in managing relations and delivering communications with the national regulators. Furthermore, thanks to the involved Departments organisational position (usually at the dependence of the Board of Directors, the General Director or even the President), this solution is also a guarantee of an institutional and firm wide consistent approach toward the supervisors. At the same time, this solution requests additional investments in terms of human resources and /or their specific training, especially on the risk management and internal control system matters that are central in the supervisory activity.

Moreover, these possible solutions have to be evaluated in connection with the human resources availability constraints, the bank organisational culture and practice and its strong and weak points, which will affect the choice of one option or the other. It depends on what fits better.

 

6. Coordination mechanisms option: how to implement it, its pros and cons

The choice of a coordination mechanism could be seen as the first step most banks have adopted in the last months in order to cope with the new rules and tasks while, in the meantime, designing and implementing one single access point philosophy.

Alternately, this mechanism could be seen as the final choice in the tools box of middle sized banks, characterized by financial and human resources constraints and with a more oriented attitude toward leveraging effectively existing tools, skills, competences and processes, within a set of common coordination rules and the appointment of a reference manager (or different reference managers for the main topics / projects / tasks).

This option, simple and direct in its nature, needs a great effort in terms of self-discipline and control over some profiles as, e.g., the reputational risks that could arise with regulators. Indeed, a responsibility that is spread over different departments and offices could be translated into a cacophony and sometimes into erratic or misleading (even contradictory) communication flows toward the regulators.

Finally, the pivotal role exercised by the reference manager could develop into a very personalized approach, not reflecting the institutional image and culture.

 

7. Conclusions

The Banking Union is just a pillar of a more complex process of unification inside the EU that consists of Economic, Financial and Fiscal Union and its democratic accountability corollary.

The implementation of this complex new framework and the related cultural consequences pose very interesting and exciting challenges for the European banking system as a whole and for the specific banks, with new best practices belonging to a more international sphere taking the lead over the “old local” school thinking embedded in national institutions and rules. A new course for Europe and Italy has therefore begun.

The way Italian banks are managing the new relationships with SSM and the future choices in this regard will tell us if they would lead the change, with a cultural and operational evolution and a pro-active attitude, or would passively endure it, without exploiting the best out of this new “world”.

 

 

REFERENCES

ECB (4 November 2014), ECB assumes responsibility for euro area banking supervision, Press Release, [https://www.bankingsupervision.europa.eu/press/pr/date/2014/html/sr141104.en.html]

ECB (November 2014), Guide to banking supervision, [https://www.bankingsupervision.europa.eu/ecb/pub/pdf/ssmguidebankingsupervision201411.en.pdf]

BCG The Boston Consulting Group (October 2014), Life Under the New Single Supervisory Mechanism (SSM), Study

European Commission (22 June 2015), Completing the banking union,  Factsheet, [http://ec.europa.eu/priorities/economic-monetary-union/docs/single-market-strategy/factsheet-completing-banking-union_en.pdf]