Italian Finance Minister Fabrizio Saccomanni said bank lending isn’t meeting the needs of the economy and less regulated forms of credit, like those falling under the term “shadow banking,” are needed.
“Faced with a possibly significant reduction in bank financing, the economy’s credit needs must be satisfied by other participants,” Saccomanni said in the e-mailed text of a speech given today.
Italy is struggling through its longest recession in two decades as bank lending contracts. Saccomanni, who serves in the two-month-old administration of Prime Minister Enrico Letta, said small and medium-sized companies are too dependent on bank loans and could be helped by expansions in private equity and securitization.
“To encourage new forms of market-based lending, incentives could be introduced, above all for the financing of long-term investments, especially in infrastructure” and small and medium-sized businesses. “Less stringent rules could also be applied for institutional investors, like insurers and pension funds,” he said.
Saccomanni’s remarks come as the European Union considers tightening regulation of lending that lies outside the regular banking system to reduce risks.
While financial watchdogs around the world have reined in excessive risk-taking by banks in the wake of the 2008 crisis, they are concerned that lenders and other financial firms can use exchange-traded funds, repurchase agreements and other off-balance sheet activities, known as shadow banking, to evade the rules.
Saccomanni also advocated for credit funds, which he said were tied to the shadow-banking market.
“We’re talking about intermediaries whose business belongs to shadow banking, which is generally feared for the systemic risks it produces outside of the regulated perimeter,” he said. “At a time when banking credit is in significant and prolonged contraction, the role of the shadow-banking system could yet reveal itself a support to economic recovery.”