Banks, 739 billion in protected deposits in Italy. But what is the availability of the fund?

The Black Friday of the markets and the collapse of Deutsche Bank have kept alive the issue of confidence in the banking sector, which seems to be decreasing visibly. The ECB intervened assuring that if there were a problem regarding deposits it would be ready to intervene by providing liquidity as needed. In Italy there is a deposit protection fund, but its availability is very limited. All of this was discussed in the episode of Numeri, an in-depth analysis of Sky TG24, aired on 24 March

The week of the markets ended with a black Friday. Heavy session for the European stock exchanges, once again knocked down by worries about the stability of a banking sector subject to a growing crisis of confidence. Piazza Affari ended trading down 2.23% to 25,892 points, Paris down 1.74%, Frankfurt down 1.66% and London down 1.26% with banks once again in the eye of the cyclone, in the wake of the concerns that Deutsche Bank fell victim to. The institution came under fire after the announcement of plans to repay a $1.5 billion Tier 2 subordinated bond in advance, and the stock had lost up to 11.6% in the morning, then reducing the losses to 5.9%. The episode of Numeri, an in-depth analysis of Sky TG24, which aired on 24 March (ALL EPISODES), focused precisely on the issue of trust in banks and the deposit protection fund.

What happened to Deutsche Bank

The epicenter of the markets’ Black Friday, explained Morya Longo de The sun 24 hours, “starts from a market which is that of Tier 1 securities, hybrid securities halfway between shares and bonds, they are securities that banks issue to strengthen their capital without having to issue bonds. These stocks have been hit by two shocks this week, the first when Credit Suisse with the acquisition by UBS has eliminated the Tier 1 but not the shares. Usually, when a bank is in crisis, the shares are canceled first, then the Tiers, then the Tier 2s and so on. In this case the order has been subverted, as if a teacher rejected those with 6 and promoted those with 5. It should be emphasized that in Switzerland there is different legislation, and there this is possible as the ECB has also underlined, but the market was shocked. Secondly, Longo continued, “two regional German banks have decided not to repay Tier 1 securities in advance: these have no maturity, are perpetual like shares, but are usually repaid in advance in the fifth year. It is a custom that these two banks have not exercised. This created turbulence, which focused on Deutsche Bank because it is historically a very aggressive institution, it has many derivatives, it is very exposed to the American mortgage market as was Credi Suisse, but which then expanded to all banks ” .

An exaggerated reaction of the markets

Ignazio Angeloni, professor at the European University Institute of Florence and former member of the ECB Supervisory Board also spoke on the matter. “These two small German banks have decided not to exercise an option they had, it’s not that they missed a contract or a commitment. It seems to me that the total of these securities is around 300 million, they are two very liquid banks and I don’t think they took this decision due to a liquidity problem. In a moment of market emotion this had repercussions on the entire stock market trend and on the securities of some banks – Angeloni said – It seems to me that there is a lot of exaggeration in today’s market reaction, the ECB was right to reassure the market and to reassure that if there were a problem regarding deposits it would be ready to intervene by providing liquidity as needed”. Even Olaf Scholz, after the black day of Deutsche Bank, reassured: “Deutsche Bank is a very profitable bank, there is no reason to worry”. In recent years, specified the German chancellor, “Deutsche Bank has modernized and reorganized the way it works”.

The protection fund for deposits in Italy

But Credit Suisse also had capital ratios that were fully compliant with banking supervision. What happens if there is also a lack of trust in customers? The run on the Silicon Valley Bank branch, for example, occurred even in spite of data that were not such as to justify it. And this is where deposit protection comes into play: in Italy the fund that protects deposits, i.e. the one that gives money back to account holders if the bank in which they had put them crashes, has available funds of 3.3 billion against of 739 billion in protected deposits. It is a very small part, so it is needed as a last resort. In our country it is almost never needed, but the disproportion is such that if trust fails, it could also spill over into solid banks.