EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 24 March 2016  
on the reform of cooperative banks, a guarantee scheme for  securitisations  
of non-performing loans and the lending capacity of alternative investment funds  
(CON/2016/ 17) 
 
Introduction and legal basis  
On 2 March 2016, the European Central Bank (ECB) received a request from the Italian Ministry of 
Econom ic Affairs  and Finance for an opinion on Decree- Law No 18 of 14 February 2016 on urgent 
measures concerning the reform of banche di credito cooperativo (‘BCCs ’, ‘Italian cooperative banks ’), a 
guarantee scheme for securitisations  of non- performing loans , tax arrangements relating to crisis 
procedures, and the collective management of assets  (hereinafter the ‘Decree- Law’). The Decree- Law 
must be converted into  a law within 60 days of publication , i.e. by 15 April 2016 , failing which it is 
rendered invalid ab initio . 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union,  and the third and sixth indents of Article 2(1) of Council 
Decision  98/415/EC1, as the Decree- Law relate s to the Banca d’Italia and to rules applicable to financial 
institutions insofar as they materially influence the stability of financial institutions and mark ets. In 
accordance with the first sentence of Article 17.5 of the Rules of Procedure of the European Central 
Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the Decree -Law 
The Decree- Law contains three elements of interest to the ECB . First, it reforms  the Italian BCCs. 
Second, it introduces a g uarantee scheme for securitisations of  non-performing loans . Third, the 
Decree- Law introduces new rules concerning the capacity of alternative investment funds governed 
by Directive 2011/61/EU  of the European Parliament and of the Council2 and established in Italy 
(hereinafter ‘Italian AIFs ’) or in another Member State ( hereinafter ‘EU AIFs ’) to engage in non-
consumer lending activities.  
1.1 Reform of cooperative banks  
1.1.1  The Decree- Law reforms BCCs with th e aim of bringing about  more transparent and efficient 
governance standards , and eliminating structural weaknesses in the system of BCCs. It provides 
                                                 
1  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
2  Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund 
Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) 
No 1095/2010 (OJ L 174,  1.7.2011, p. 1) . 
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2 for the establishment of Cooperative Banking Group s (hereinafter ‘Groups ’) each led by a parent 
company . 
1.1.2  The Decree- Law requires  each BCC to choos e between joining a Group or, subject to certain 
conditions, being converted into a joint stock company . A BCC must  join a Group in order to be  
authorised by the Banca d’Italia to carry out banking business in the form of a BCC. Alternatively , 
individual BCCs whose net assets exceed EUR  200 million may  opt not to join a Group on 
condition that they become  joint stock companies , with the authorisation of the Banca d’Italia, and 
pay an extraordinary tax of 20 % of their  cash reserve.  
1.1.3  Each Group must have a parent company , incorporated as a joint stock company , with the majority 
of its shares  held by the BCCs in the group. A parent company must have net assets  of at least 
EUR  1 billion,  and be authoris ed by the Banca d’It alia to carry out banking activit ies. A parent  
company primarily directs and coordinat es the BCCs in its Group in accordance with the relevant 
cohesion contract.  
1.1.4  Cohesion contracts  set out  the powers of the parent company , in accordance with the principle of 
mutuality , including:  (i) the power to identif y and implement the strategic orientation and operational 
objectives of the Group adjusted to the risk level of the BCC  in question; (ii) the power to approve  
or reject , in exceptional cases,  the appointment  of one or more BCCs’ board members up to the 
majority of its members ; and (iii) the power to expel a BCC from the Group in the event of a serious 
breach of one or more of the terms of  the cohesion contract, and other types of sanction 
proportion ate to the seriousness of the breach in question.  
Cohesion contract s also provide for joint and several guarantees  of the obligations assum ed by the 
parent company and the BCCs , in accordance with the prudential regulations of the G roups and 
individual banks  in the Group.  
1.1.5  The Decree- Law also amends the rules regarding the capitalisation of individual BCCs as follows:  
(i) the maximum share capital in a BCC that can be held by a single shareholder is increased from 
EUR  50 000 to EUR  100 000; and (ii) the minimum number  of shareholders of a BCC is increased 
from 200 to 500.  
1.2 Guarantee scheme for securitisations of non-performing loans  
1.2.1  The Decree- Law provides for the introduc tion of a State guarantee scheme to cover the senior 
tranches of securitisation transactions carrie d out by banks incorporated in Italy and backed by 
non-performing loans ( NPLs ). The guarantee scheme will be open to all Italian banks and the 
guarantee for the senior notes will be priced at market rates and be based on specified credit 
default swap contr acts, in order to ensure compliance with State aid rules . The Minister for 
Econom ic Affairs and Finance is authori sed to issue guarantees under the scheme for 18 months  
starting from the date the Decree- Law enters into force,  i.e. 16 February 2016. This period  may be 
extended for a further  18 months , subject to the prior approval of the European Commission.  
1.2.2  The scheme is based on individual banks seeking to set up a securitisation structure  under  which 
NPLs will be transferred at a price no higher than thei r net book value, i.e. gross value minus 
provisions. The securitisation structure is financed by issuing senior, mezzanine (optional)  and 
junior notes.  
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3 1.2.3  The State guarantee is an unconditional, irrevocable and first -demand guarantee, covering 
contractual pa yments  for interest and capital,  but only for the benefit of senior noteholders. The 
guarantee will become effective only once the following conditions are fulfilled: (i) the bank appoints 
an independent NPL servicer to deal with securitisations ; (ii) the securities receive a rating equal to 
or higher than investment grade from a rating agency included in the list of the external credit 
assessment institutions  accepted by the Eurosystem; and (iii) the originating bank has sold to 
private investors a share of at least 50 % plus one of the junior tranches , and has sold a sufficiently 
large part of the junior and mezzanine tranches to achieve accounting derecognition of the NPLs  
sold3. 
1.3 Lending capacity of alternative investment funds  
1.3.1  Since 2014 the Italian Cons olidated Law on finance 4 has provided for the possibility for Italian AIFs 
to engage in direct lending under certain conditions, specified in Banca d’Italia’s regulation5: they 
must have a closed ended structure and are subject to concentration6 and lever age limits7; the 
maturity of credits cannot exceed that of the fund.  
As for internal controls, asset managers are required to define, within the risk management system, a specific process of managing credit risk, with particular regard to: i) risk measurement; ii) risk 
diversification; iii) credit monitoring; iv) classification of risk positions; v) assessment and 
management of impaired loans.  
1.3.2  The Decree- Law amends the Italian Consolidated Law on finance specifying that credit funds 
cannot lend to retail c onsumers and that AIFs ’ lending activity is subject to rules on transparency. It 
also extends the possibility to grant loans to EU AIFs under  the following conditions: (i) EU AIFs 
are authorized by the competent authority of the home Member State to grant loans in the home 
Member State; (ii) EU AIFs adopt a closed ended structure and their operating model, including the 
rules of participation, is comparable to that of Italian AIFs; (iii) the prudential regulation of the home 
Member State, including limits t o leverage, are deemed equivalent to those applied to Italian AIFs. 
The assessment of equivalence is carried out by Banca d’Italia and can be based on the 
contractual provisions governing the AIFs. The home competent authority must ensure that the EU 
AIFs comply with such provisions . 
1.3.3  Without prejudice to the foregoing,  the Banca d’Italia is obliged to lay  down detailed rules to be 
applied to EU  AIFs engaging in direct lending in Italy . In any case,  the Banca d’Italia has the power 
to veto EU AIFs engaging i n direct lending in Italy. If no veto is imposed, EU AIFs operating in Italy 
will be also required to comply with Italian conduct of business rules governing transparency of 
contractual terms and client relationships . 
 
                                                 
3   No State body may buy junior or mezzanine notes.  
4  Testo Unico della Finanza, Decreto Legislativo ( 24.02. 1998, n. 58) . 
5  Regolamento sulla Gestione collettiva del risparmio (19.1.2015).  
6  The exposure to a single client is subject to a limit of 10 per cent of the total assets of the fund.  
7  More specifically, AIFs marketed to retail customers are subject to a leverage limit of 1.3 (calculated as the ratio 
between the total assets and the total net value of the fund) and can enter into derivative contracts exclusively for 
hedging purposes, whereas AIFs marketed to professional investors are subject to a leverage limit of 1.5.  
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4 2.  The appropriate time to consult the ECB  
2.1 The ECB must be consulted at an appropriate stage in the legislative process. Consultation should 
therefore take place at a time that enables the relevant national authority  to take the ECB’s opinion 
into account before the provisions in question are adopted8. 
2.2 In the Italian legal system, a decree- law enters into force when it is adopted by the Government. It 
takes effect  following publication in the Gazzetta Ufficiale and must be submitted on the same day 
to Parliament for conversion into la w. If not converted within 60 days of publication, the decree- law 
is rendered invalid ab initio . Amendments may be introduced during the conversion process. In the 
light of the foregoing, the ECB should be consulted before the adoption of a decree- law9.  
2.3 In the present case, as the Decree- Law was adopted on 14 February 2016 and published on 
15 February 2016, not only was the ECB not consulted before its adoption,  but the submission of 
the consultation request was unnecessarily delayed. The request was r eceived by the ECB on  
2 March 2016, when the Ministry of Economic Affairs and Finance asked the ECB to consider the 
consultation as a matter of urgency in view of the short deadline for conversion. This situation is 
unfortunate and the ECB would like to em phasise to the Ministry the need for proper consultation.   
 
3.  Observations  
3.1 Reform of cooperative banks  
3.1.1  It is recalled that the ECB was consulted and issued an opinion on Decree- Law No 3/2015 on 
urgent measures for the banking system and investments , which introduced significant reforms of 
‘popolari banks’10. The reform of cooperative banks is part of the same reform of the banking 
system.  
3.1.2  Under the current prudential regulatory framework, both strong governance arrangements and a 
solid capital structure ar e crucial concerns for the banking supervisor. To this end, the 
consolidation of the cooperative banking sector into  Groups where the parent company is a joint -
stock company would facilitate each Group’s ability to raise capital and enhance shareholders’ 
control over management. In addition, this could make it easier for capital instruments issued by 
the BCCs to fulfil the  requirements  of Regulation (EU) No 575/2013 of the European Parliament 
and of the Council11, as supplemented by Commission Delegated Regu lation (EU) No  241/201412, 
for capital instruments to qualify as Common Equity Tier 1 capital . Furthermore, the Group 
arrangements make it possible for the Common Equity Tier 1 of the BCCs in excess of minimum 
                                                 
8  See Article 4, second sentence, of Council Decision 98/415/EC of 29 June 1998 on the consultation of the European 
Central Bank by national authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42);  Title IV, 
Section I of the Guide to consultation of the European Central Bank by national authorities regarding draft legislative 
provisions , which  is available o n the ECB’s website at: www.ecb.europa.eu.  
9 See ECB Opinion CON/2012/64.  All ECB opinions are available on the ECB’s website at: www.ecb.europa.eu.  
10  See ECB Opinion CON/2015/13.  
11  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ  L 176, 
27.6.2013, p. 1).  
12  Commission Delegated Regulation (EU) No 241/2014 of 7 January 2014 s upplementi ng Regulation (EU) 
No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for Own 
Funds requirements for institutions  (OJ L 74, 14.3.2014, p. 8) . 
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5 requirements to be accounted for purposes of co mpliance with capital requirements at consolidated 
level.  
3.1.3  The ECB expects that the Decree- Law will accelerate consolidation among Italian cooperative 
banks. This process should eventually result in the cooperative banking sector as a whole having 
an improv ed capacity  to absorb negative shocks, as well as providing new opportunities for 
rationalisation of resources and diversification of investments. Given the importance of the Decree-
Law in addressing the vulnerabilities of the Italian cooperative banking s ector, the ECB generally 
supports the key elements of the proposed reform.  
3.1.4  Nevertheless, the ECB wishes  to raise the following points : 
3.1.5  First, the  establish ment of  a Group involves significant challenges for the parent company in terms 
of risk g overnance and control system s. In this regard, the ECB would like emphasise that, in order 
to be aligned with best practices at international level, the parent company’s powers to manage  
affiliated institutions and coordinate the Group should be broader than provided for in the Decree-
Law. In particular , the parent company should be able to direct and coordinate the Group, including 
by giving direct instructions to the affiliated institutions under any circumstances to ensure 
compliance with applicable prudential rules and supervisory requirements as well as to ensure that 
the group entities’ operations and strategies are in line with the Group’ s policies and objectives. 
The ECB understands that the powers of the parent company depending on the risk level of  each 
BCC will be clearly specified in secondary regulation and in the “cohesion contracts” in a way to ensure that these powers are strong and effective, in compliance with CRD IV requirements and 
the best practices. This solution reflects the principle of autonomy of the BCCs which are 
cooperative companies devoted to a mutual activity according to their special statute. However , in 
order to safeguard the parent company’s effective control of the Group, the power to remove 
directors should not be limited to exceptional  situations.  
3.1.6  Second, t he ECB welcomes the Decree- Law stipulating that the parent company will have control 
systems and the power to ensure compliance with prudential requirements, as it is of great 
importance that Groups have  well-designed control functions , including  risk management, 
compliance, internal audit  and planning,  reporting exclusively to the parent company.  
3.1.7  Third, th e ECB notes that the provision according to which BCCs can decide whether or not to join 
a Group may undermine the reform. In particular, as the date by which BCCs must have net asset s 
of at least EUR  200 million is not stipulat ed in the Decree- Law, there is a risk of promoting mergers 
between BCCs with net assets below EUR 200 million. Not joining a Group should be an 
exceptional option which can only be exercised during a limited period of time and measured with 
reference to the required level of net assets for a BCC on a specific prior date ( for example,  net 
assets as at 31 December 2015).  
3.1.8  Fourth, pursuant to the Decree -Law, the Banca d’Italia is the authority competent to verify whether 
the requirement to form a Group has been fulfilled . The Banca d’Italia is also competent  to 
authorise a BCC’s membership  of a Group,  the rejection of a request for membership,  the 
exclu sion of a B CC from a Group,  and the conversion of a BCC into a  joint stock company . Where 
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6 the relevant authorisations are not granted, the B CC must commence liquidation proceedings13. 
Further, in the event of non -compliance with the requirement to form a Gr oup, the Banca d’Italia is 
competent to take the actions necessary to revoke the authorisations  necessary  to carry out 
banking activities14. It is understood that these powers assigned to the Banca  d’Italia are without 
prejudice to the powers assigned, w ithin the scope and framework of Council Regulation (EU) 
No 1024/201315, to the ECB as the authority competent to withdraw authorisations of credit 
institutions16 and to ensure compliance with the requirement of Directive 2013/36/EU of the 
European Parliament and of the Council17 that credit institutions have in place robust governance 
arrangements18.  
3.1.9  Finally, two key aspects of the proposed legal framework for Groups concern the procedure for the 
functioning of the joint guarantee and the minimum organisational requirements for the parent  
company . Regarding the  joint guarantee, there should  be sufficient arrangements in place to 
ensure that committed support will be given when necessary . Regarding organisational 
requirements , it is critical that the Decree- Law requires adequate corporate governance measures 
to be in place in order to ensure that the parent company is able to meet its dual mandate as 
oversight body of the affiliated BCC and as executive body of the entire Group. The ECB notes  that 
it is the intenti on of the Italian government to further develop these aspects in a ministerial Decree . 
The ECB would appreciate being consulted in advance of  the final approval  of this Decree.  
3.2 The guarantee scheme for securitisations of NPLs  
3.2.1  The ECB welcomes the guarantee scheme for securitisations of NPLs  as it may lead to a reduction 
of funding costs for  such  securitisation s, which would allow NPLs to be recognised with a higher 
value and thus incentivise the transfer of NPLs.  From a financial stability point of view , the 
presence of significant volumes of NPLs on credit institutions’ balance sheets reduces their ability 
to fulfil their function as providers of credit to the real economy and hampers operational flexibility 
and overall profitability essential to a well -functioning banking sector. As such, the scheme may 
have a positive, albeit incremental, effect on financial stability to the extent that it would result in 
transfer of the risks of NPLs off credit institutions’ balance sheets . However, the scheme needs to 
be seen in conjunction with other measures required in order to address the issues posed by NPLs 
for credit institutions in a systemic manner.  
3.2.2  The ECB notes that the procedure for enforcement of the guarantee, in particular the permitted timing of enforcement claims, set out in Article 11(1) of the Decree- Law should be clarified in order 
to align the first and second sentences of that  paragraph. The first sentence reads as if the 
guarantee may only be enforced from the date of legal maturity of senior notes until nine months 
                                                 
13  Art. 1(4)(c) of the Decree- Law.  
14  Art. 2(4) of the Decree- Law. 
15  Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank 
concerning policies relating to the prudential supervision of credit institutions ( OJ L 287,  29.10.2013,  p. 63).  
16  Art. 4(1)(a) of  Council Regulation (EU) No 1024/2013.  
17  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of 
credit institutions and the prudential supervision of credit institutions and investment firms, amending Di rective 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176 , 27.6.2013, p. 338).  
18  Idem, see Article  74. 
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7 thereafter. The second sentence, however, allows enforcement procedures to be commenced 
30 days after a non- payment event, which could also occur prior to the final maturity of the senior 
notes, e.g. in relation to interest payments. It would therefore seem more logical that the guarantee 
may be enforced at the latest  nine months after final maturity of the senior notes , but also prior to 
final maturity after a non- payment event. The ECB suggests that the wording in the first sentence 
shoul d be amended accordingly to include the words ‘at the latest’ .  
3.2.3  The ECB further notes that Article 11(2) of the Decree -Law should be amended to clarify both the 
timing and quantum of payments which should be made by the guarantor under the guarantee. With regard to timing, the ECB understands that , within thirty days from the date of receipt of a 
documented request for enforcement of the State guarantee, the Minister for Economic Affairs and 
Finance must undertake payment, and not only upon the maturity of the senior  notes. As currently 
drafted, the amount payable appears to cover only the full amount of principal of the senior  notes 
which would be due at  final maturity. This appears to contradict Article 8(2) of the Decree- Law, 
which indicates that the guar antee covers payments of principal and interest for the entire term of 
the senior notes, since future interest payments would not be covered. In addition, the ECB notes 
that the current drafting implies that , even if there were a non- payment event relating  only to an 
interest payment occurring prior to the maturity of the senior  notes, the guarantee payment would 
involve payment of the full amount of principal , prior to that principal becoming due on such final 
maturity date.  
3.2.4  Finally,  the ECB also welcomes  the Decree- Law requiring the appointment of a qualified 
independent entity to monitor the compliance of the issued guarantee with stated conditions, the 
appointment of an independent servicer and  the transfer of at least 50 % plus one of the junior 
notes, and in any case, an amount of mezzanine and junior notes permitting the derecognition of 
the underlying assets at consolidated level  in accordance with Article 8(1)  of the Decree- Law. 
3.3 Lending capacity of alternative investment funds  
3.3.1  In general, a lternative investment funds ( AIFs) which are entitled to grant loans carry out a typical 
banking activity  outside the regulated banking system (i.e. without being subject to Regulation (EU) 
No 575/2013 and Directive 2013/36/EU or comparable prudential regulation). A IFs might therefore 
act as substitutes for bank lending  and could generate credit intermediation risks (i.e. runs and/or 
liquidity risk) without having a banking (or comparable) licence. While regulated indirectly as a result of initial capital, own funds and internal controls requirements imposed on their asset 
managers under Directive 2011/61/EU, AIFs are not subject to harmonised rules on concentration  
risks and credit assessment s
19.  
3.3.2  In light of these considerations, it should be ensured that the direct provision of loans by AIFs is 
subject to targeted measures efficiently mitigating the associated risks. The ECB thus welcomes  
that Italian legislation20 provides for rules applicable to lending activities of both EU AIFs and Italian 
                                                 
19  See European Banking Authority Guidelines ‘Limits on exposures to shadow banking entities which carry out 
banking activities outside a regulated framework under Article 395(2) of Regulation (EU) No 575/2013’  of 
14 December 2015 (EBA/GL/2015/20), p. 10.  
20  Regolamento sulla Gestione collettiva del risparmio (19.1.2015).  
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8 AIFs on managing credit risk  with regard to risk measurement and diversification, leverage, fund 
structure as well as credit monitoring, classification of risk positions and assessment and 
management of impaired loans.   
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 17 March 2016.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI