It is generally held that deposit guarantee and supervision are two sides of the same coin.18 This captures the delicate balance that links the interests of supervision with those of DGS.
Of the many theoretical possible solutions to the problem of relationship between DGS and Supervisory Authorities, Directive
EC/19/1994 opted for DGS autonomy and for non-recourse to public money.19
With regard to supervision, the directive limits itself to typifying only some interventions by “the competent authorities”, especially concerning non-implementation by member banks which could lead to their expulsion from the DGS and, consequently, to the revoking of the licence of conduct banking activities. 20
The Banking Law offers another perspective.
While Art. 96, para. 4, underlines the private nature of DGS, the listing in Art. 96-ter sets very close links between DGS and Supervisoryr Authorities by assigning a range of powers to the Bank of Italy for interventions in the organization and management of the DGS:
“The Bank of Italy, having regard to the protection of savers and the stability of the banking system, shall:
a) recognize guarantee schemes and approve their bylaws, provided such schemes do not have features entailing an unbalanced distribu- tion of insolvency risks within the banking system;
b) coordinate the activity of guarantee schemes with banking crisis procedures and supervisory activity;
c) regulate payment procedures, inter alia with reference to joint accounts;
d) authorize interventions by guarantee schemes and exclusions of banks from such schemes;
e) verify that the protection provided by foreign guarantee schemes to which branches off non-EU banks authorised in Italy belong is equiv- alent to that provided by Italian guarantee schemes;
f) regulate the public notice that banks are required to give with the aim of informing depositors about the guarantee scheme in which they participate and the various types of claim covered;
g) regulate the procedures for coordination with the competent authori- ties of other member states regarding the participation of branches off EC banks in an Italian guarantee scheme and their exclusion therefrom;
h) issue measures implementing the rules contained in this Section.”
The impression given is that the law wished to limit the autonomy of the DGS, as if to make it another instrument in the hands of the Bank of Italy for managing and resolving crisis. 21
But since this approach would seem in contrast with Directive 1994/19, some point of equilibrium between the two needs to be found, between the exercise of these functions (or some of them) by the Bank of Italy and the continuity of the autonomy of the DGS.
Art. 96-ter grants powers to the Bank of Italy which seem appro-r priate to those EC/19/1994 gives to DGS – protection of depositors – and one of the targets contained in Art. 5, the stability of the banking system.
The specific mention of both aims implies their mutual autonomy, leaving to the discretion of the supervisory authorities the evalua- tion of the impact the exercise of its powers under both profiles, in a dialectical tension. 22
The functions indicated in c, e, f, g and h are fully in line with the functions of the supervisory body and do not violate the autonomy of DGS.
With regard to sub e, because it is the role of the Bank of Italy to license non-EU branches (Art. 15), it is logical that it is always the Bank of Italy that assesses the equivalence of the protection provided by the foreign DGS to the Italian one.
The normal functions of supervision justifies the powers of coordi- nation in letter g to issue measures implementing letter h, as well as to regulate the means for payouts (letter c) and the obligation of the banks to provide information (letter f). 23
Others powers are not without complications.
4.3.1 Letter a Final approval of the statutes for the recognition of DGS
This is really a conforming power both at the moment the DGS is set up and whenever it moves to alter its internal regulations.
But since the statutes of DGS are acts of their own creation and as such the expression of their autonomy, inalienably linked to their freedom of action, they can only be subject to the limitations permitted by Art. 41, 24 para. 3, Constitution.
What this means is that the compliance powers of supervision cannot impact on all the rules of self-governance25 of the DGS but must limit itself to ascertaining compliance with the mandate given by the law, 26 namely protection of depositors.
But since, if the DGSs are not adequately regulated, they can give rise to moral hazard, the Bank of Italy must assess that they perform
their functions without creating situations of instability, such as if the statutes should “entail(ing) an unbalanced distribution of insol- vency risks within the banking system” (Art. 96-ter , letter a). r
In other words, the guiding criteria for the approval of the stat- utes are none other than the expression of the principle of “fit and prudent management” (Art. 14, para. 2), applied to the specific func- tion of the DGS.
Power of coordination, as in Letter b, is closely bound up with that of authorization of interventions (letter d).
Recognition of this power by the supervision is, in a certain sense, obvious since the DGS acts when there is a formal procedure for crisis management (in that case every form of intervention must be coordi- nated to the procedure) or in a pre-crisis stage through support inter- ventions. In the latter case, authorization for the intervention meets the necessity for the Bank of Italy to place in a condition to adopt, if opportune, the provisions within its power.
In any case, part of the literature27 maintains that the exercise of authorizing power shall be limited to the control on the legality of the action of the DGS. The DGS, being financed by the member’s banks, should be able to decide autonomously the means for inter- vention, such as, for example, to assess if, in the case of CAL, it is better to payout the depositors or to finance possible mergers.
However, in practice, the Bank of Italy with non-standard use of its authorization powers had used DGS funds for its own supervisory goals and this did not always coincide with the interests of the DGS in question. 28
In fact, depositor protection aside, the DGS and thus the banking system in general, had a higher cost than if depositors had been reim- bursed for the ensuing recovery actions.
In this way, the combined management of resources practized by the Bank of Italy created a real “functionalization” of the private firm for publicity reasons that is in full contrast with Art. 41 of the Italian Constitution. 29