June 7, 2018 / 2:22 PM / 8 months ago

INTERVIEW-League senator says Italy must freeze cooperative bank reform

ROME, June 7 (Reuters) - Italy should halt a reform of small cooperative lenders, a prominent senator in the ruling coalition said on Thursday, arguing that EU rules punished domestic banks for their high bad loans while overlooking risks at German rivals.

Alberto Bagnai, a senator from the right-wing League, told Reuters the cooperative bank reform would increase an “asymmetry” in euro zone banking whereby Italian lenders are under closer ECB scrutiny than German peers, resulting in tighter credit for Italy’s small businesses.

“Until the regulatory asymmetry is removed, we think it wiser not to proceed further with this reform,” he said.

Rome’s new anti-establishment government plans to review changes to mutual and co-operative banks which were passed by the previous administration to try to streamline governance and improve lenders’ ability to tap investors for capital if needed.

The 2016 reform drawn up by former prime minister Matteo Renzi will force hundreds of small cooperative banks to merge into two large groups in a process expected to be completed early next year. They will then fall under the direct oversight of the European Central Bank.

Bagnai, who is widely tipped to be named an under-secretary in the new administration, wants the reform to be frozen for 18-months.

The ECB declined to comment.

Bagnai calculates the changes under the reform would reduce the share of Italy’s lending market supervised domestically to no more than 13 percent against Germany’s 44 percent.

“If the Single Supervisory Mechanism is a good idea, German resistance to put its banking system under its supervision is puzzling,” he said. (Editing by Crispian Balmer)

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