Co-operative banks

Background information

Italy’s co-operative banks, in Italian Banche Popolari, which represent a large portion of the country credit industry with almost one fourth of the market, nearly 30% of existing outlets and 11 million clients, are at a crucial juncture. Should they keep going with the traditional mutual model and continue supporting SMEs and families in their local markets? Or have they to change in order to better compete in the European market, even by changing their 160 year old governance system? The first co-operative bank in Italy, the Banca Popolare of Lodi, a small industrial town near Milan, was established in 1864 as economist and politician Luigi Luzzati introduced in the country the German model of the Volksbank, the bank of the people. In a few year time the new co-operative banks, thanks to the special attention they devoted to local households and small businesses as well as to their governance, gained an important market share, some one fourth of the market, the same they own nowadays.
Between the two World Wars, in Italy the years of Mussolini’s dictatorship, both the crisis of the banking system and an economic policy supporting big corporations made the co-operative banks number drop from more than 750 to just 300. But they resurfaced promptly in the Fifties and the Sixties of last century as they played a crucial role in the booming post-war economy. The banking reform of the Nineties, based upon liberalizations and privatizations, gave co-operative banks a further boost to the levels they enjoy today in terms of clients, outlets and market share.
The consolidation process which impacted the Italian banking system after the reform hugely involved the co-operative banks, which now boast six lenders of national standing: Banco Popolare (resulted from the merge of Popolare di Verona, Popolare di Lodi and Popolare di Novara), UBI Banca (created by Popolare di Bergamo and Popolare Commercio e industria), Banca Popolare dell’Emilia Romagna (which combined all the co-operative banks of the Region), Banca Popolare di Milano, Banca Popolare di Vicenza and Banca Popolare di Sondrio.
Each co-operative lender has its own history, but all of them are facing deep changes imposed by markets and regulators. The European Commission believes the headcount governance, when adopted by publicly listed companies, to be an obstacle to the free circulation of capitals. But, also thanks to their governance, the co-operative banks managed to side by their local customers, who represent some 80% of their income, while staying away from big banks involved in the global finance dangerous games. In fact, their capital ratios often fare better than those of larger banks. That’s why Italy is studying a reform aimed at increasing big investors and mutual funds appetite for investing into co-operative banks. The reform is very cautious indeed on the governance: in its last version of Summer 2012 it conceded to raise the ceiling for shares owned by a single shareholder to 1% from the previous 0.5%, but leaving each bank free to stick with the old 0.5%, while only bank’s Foundations were allowed to own up to 3%, and keeping the one-head-one-vote governance. Some are trying to stay ahead of the pack, like first mover Banca Popolare di Milano which is tentatively transforming itself into a regular limited company under a new management.

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