Italian Banks Well Positioned to Absorb Impact from the Potential Implementation of a Systemic Risk Buffer

The commentary analyses the impact for Italian banks from the potential implementation of a systemic risk buffer (SyRB). Summary highlights from the commentary include:

-- On March 8, 2024, the Bank of Italy (BoI) indicated its intention to implement a capital requirement with respect to systemic risks for all banks and banking groups authorised in Italy.
-- The SyRB would amount to 1% of domestic credit and counterparty risk weighted assets, and the implementation of the final buffer would be gradual, with the first 0.5% to be met by end-2024, and the residual 0.5% by end-June 2025.
-- The measure aims to reinforce the resilience of the Italian banking sector to better cope with unexpected adverse market circumstances which would undermine their capitalisation and constrain their lending capacity.
-- We estimate that the implementation of the SyRB would cost up to around EUR 7.8 billion or 86 bps of capital which is manageable given current capital buffers.

“Overall, we consider Italian banks to be well positioned to absorb the impact from the potential implementation of the SyRB on the back of the sustained organic capital generation reported in 2023 which has contributed to strengthening capital buffers,” said Andrea Costanzo, Vice President from the Morningstar DBRS European Financial Institutions team.