For savers who do not deal with finance on a daily basis, it is difficult to understand sound banks. In this article we see what are the risk factors and which banks are most at risk of failure.
What are the factors of bank failure?
Transparency is the first factor to be taken into consideration in a banking institution.
actually, Important information must be accessed quickly and presented clearly and completely. If the bank takes a long time to provide them in response to our requests, this is not a good sign.
Bank size is also an important factor. The big banks are also under the direct supervision of the European Central Bank.
In total they are 114 banks are supervised throughout the European Union, and these banks own more than 80% of the total banking assets.
Listing on the stock exchange is just as important. In fact, small banks are often not on the list, which makes them somewhat less accessible to small savers. In fact, listed banks are always under the control of investors, including large investors who expect profits.
accordingly, The slightest weakness is immediately punished in the form of loss of value.
If the bank’s share price is strong or in line with the general market trend, it means that large investors, who are very sensitive to information, consider the bank to be reliable.
backwards, If the market is stable or positive, but the stock price is going down, it means something is wrong or the bank is in danger of going bust.
The next factor, which may seem difficult but is fundamentally important and easy to control, is the credit rating.
This indicator indicates the capital reserves available to the bank in the event of investment losses. Naturally, the higher the better, but in any case, this percentage should not be less than 10%.
Finally, there is a file Common Equity Tier 1 Ratio (CET1), short for Common Equity Tier 1 Ratio, is a percentage value that demonstrates the solidity of a financial institution in relation to risky investments.
The minimum value set by the European Banking Authority below which an institution is considered risky is 8%. Again, the higher the percentage, the better.
This percentage distinguishes between banks at risk of bankruptcy or bankruptcy and good Italian banks.
In other words, if this coefficient drops below 8%, the bank’s credibility is at risk (even the credibility of a stable bank is damaged).
Why do banks fail?
The main role of banks is to collect the savings of some people (Through operations such as opening deposits, current accounts, etc.) and placing them savings available to other people, That is, for those who apply for loans or mortgages.
In other words, banks collect money and give it to those who don’t have any money.
However, this trick obviously only works if the capital is held for a certain period of time.
backwards, If everyone asks the bank to return their money, the bank will not be able to respond because all the money lent to the borrowers will be lost.
What banks are at risk?
Over the past two years, Bankitalia has outsourced to 26 out of 208 banks – more than one in ten.
There are 16 institutions currently under special supervision. Most of these banks are cooperative and small banks. Historically, local banks are less prone to speculative financing, and are grouped and operated locally.
However, many of them have collapsed under the weight of bad loans that may have been made to a few individuals and outside their local area. Other major banks are on the verge of bankruptcy (Monte Paschi, Carriage and UniCredit). However, some banks Saved from a technical malfunction (Popolare di Vicenza, Veneto Banca, Cassa Risparmio Rimini, Cassa Risparmio di Cesena, Cassa S. Miniato …).
As for the bank failures, Calig’s situation, which had gone on for years unresolved, had reached its limit. The bank is on the brink of bankruptcy or spontaneous dissolution and the government has intervened by emergency decree to prevent it.
I use the term “automatic resolution” to mean that a stable institution has received an order from the Bank of Italy and the European Central Bank to resolve another institution that is in crisis or ill.
The bailout money was drawn from the Interbank Settlement Fund, further weakening other banks in the system. Banca Monte Paschi di Siena and two Venetian banks, later merged into Banca Intesa, They received money from the state, directly or indirectly.
In which direction are the banks going?
The underlying reason for the low profitability of many Italian financial institutions lies in the failure to realize that the world has changed and that the loan-based model is no longer at issue and cannot sustain profitability on its own.
Intesa, for example, has opted for a “fee-based” business model, as seen from year to year, and has maintained and developed its own product plants, Eurizon (managed savings products) and Intesa Assicurazioni (insurance), fee-based Investment Banking (formerly Banka Imi), together with the Private Banking and Financial Advisory Network based on Private Banking and the Financial Advisory Network based on Fideuram. Then Credem repeated this structure.
Unicredit sold its product factories (Pioneer to Amundi, Bancassurance to Allianz and Cnp to Aviva).
Outsourcing product factories is not a mistake and often leads to significant capital gains, but at present, given the circumstances, it is not the most efficient option. In the future, we will move towards larger banks that will be able to take on other tasks (insurers, asset managers, distributors of financial products).
If you are thinking of investing, it is obviously important to know the current “health” of Italian banks to avoid the risk of bankruptcy.
Now that you see that the situation is never rosy, you are always advised to get a complete picture before making an investment, high risk or not.
Above all, it is It is important to rely on an expert in the sector, such as an independent financial advisorwho knows how to guide you on the best path for you, where there is no conflict of interest.
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