Bank-Crisis Management Practices in Italy (1978-2015) and Their Perspectives in the Italian Cooperative Credit Network

Bank recovery and resolution practices so far applied have shown strong limits in the aftermath of the 2007-2008 global financial crisis. The new EU legislation concerning bank-crisis management is intended to challenge such practices. The Italian Cooperative Credit's pioneering experience of t...

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Bibliographic Details
Published in:The Journal of European economic history 2015-01, Vol.44 (2), p.115
Main Authors: Baldi, Francesco, Bredice, Marcello, Di Salvo, Roberto
Format: Article
Language:English
Subjects:
Bank failures
Banking industry
Banking law
Cooperation
Deposit insurance
Dividends
Economic activity
Economic crisis
Globalization
International finance
Legislation
Management of crises
Market exit
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Summary:Bank recovery and resolution practices so far applied have shown strong limits in the aftermath of the 2007-2008 global financial crisis. The new EU legislation concerning bank-crisis management is intended to challenge such practices. The Italian Cooperative Credit's pioneering experience of the Guarantee Central Fund (FCG) -- established on a voluntary basis in 1978 in line with the spirit of mutuality shared by the credit cooperation movement across Europe since the late 1800s -- contains important lessons on how to re-conceptualize and re-design the financial safety-net of a small banks' network within the Banking Union. The ex-ante self-financing mechanism implemented by FCG to support Cooperative Credit Banks (CCB) successfully avoided depositors pay-outs, further disbursements by member banks, and pro-cyclical effects on local economies. Overall, the Italian CC financial safety net enabled the market exit of 400 CCBs over the last 40 years without any failures, contagion spillovers to the country's economic system or societal value destruction.
ISSN:0391-5115
2499-8281