Italy: Detailed Assessment of Observance of Basel Core Principles for Effective Banking Supervision

IMF, (2013), “Italy: Detailed Assessment of Observance of Basel Core Principles for Effective Banking Supervision”, International Monetary Fund, Country Report No. 13/354, December.

SUMMARY, KEY FINDINGS, AND RECOMENDATIONS

1. The core supervisory process at the Banca d’Italia (BI) is strong, and it has a well-defined and integrated supervisory approach. BI is well regarded both in terms of independence, professional qualification and integrity. The various components of its supervision are integrated in the Supervisory Review and Evaluation Process (SREP). Key pillars of the approach are offsite analysis, onsite inspections and analytical data.

2. The authorities have made progress in addressing the recommendations of the 2006 FSAP, although some issues remain. Regarding legal protection of supervisors, the legal framework was amended in 2005 and 2006, establishing that staff are not legally liable for actions taken or omissions made while discharging their duties in good faith; regarding loan loss provisioning, the rules were modified in 2012 to consider as non-performing loans past due from 90 days (instead of previously 180 days), the Banking Law (BL) was amended in 2008 to allow the regulation of related party lending limits and procedures. Some issues previously identified remained: the procedure for covering legal costs of supervisors, the lack of power to remove members of the board and senior officials of banks, and the power to remove external auditors of banks.

3. Italy is the first country to be assessed under the revised Basel Core Principles approved by the Basel Committee in September 2012. It is also the first country to be assessed and rated not only on the essential criteria but also on the additional criteria. It is important to note that since last assessment conducted in 2005/2006, the bar of the standards has been raised twice by the BCBS (the BCP methodology was revised in 2006 and again in 2012). This assessment, consequently, is not directly comparable with the previous assessment or across countries. More is expected of supervision and regulation, and much that before the revision was considered “desirable” is now considered essential, with the lessons of crisis and evolution of financial markets and international standards. The assessment also brings a new relevance to observed implementation and practices.

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