The threshold of 100 thousand euros on current accounts in many European countries is solid because it guarantees the stability of the banking system, avoiding panic and bank runs. Although some estimates suggest risks, in Italy the Interbank Deposit Protection Fund has always covered past crises.
Furthermore, central banks can intervene to prevent the failure of key institutions. Confidence in the system is essential for economic stability, reducing the risk of systemic failures. Finally, the threshold is aligned with European standards, ensuring uniformity and security for savers.
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#1. Commercial and investment banks
In order to protect account holders after the financial crisis of 1929, which revealed all the defects of the mixed banking system, the distinction between commercial banks and investment banks was institutionalised in Italy starting in 1936.
This had similarly happened in the United States of America three years earlier with the implementation of the Glass-Steagall Act in 1933.
Let’s quickly explain the difference between the two types of banks:
- Commercial bank: focuses on collecting deposits, borrows money from the central bank to finance loans, and can serve households and businesses,
- Investment bank: operates in the field of investment and consultancy, finances itself through the issuance of securities or in the interbank market but cannot serve families and businesses.
Thanks to this distinction, the account holders of commercial banks would have had the guarantee that the capital they paid would be safe, thus reducing the risk of bankruptcy of the credit institutions in the event of bad investments.
Likewise, this distinction has drained a lot of liquidity from the investment world. In fact, in 1993, the introduction in Italy of the Consolidated Banking Act (TUB) through a European directive eliminated this clear distinction, giving rise to the concept of a “universal” bank, which could operate as both a commercial and investment bank.
Subsequently, through the Basel Accords and European regulations, regulations have strengthened risk and capital controls, but have not reintroduced structural separation.
This happened six years later also in the United States of America with the approval of President Bill Clinton, in 1999.
In Europe, starting in 2016, with the introduction of the bail-in directive (rescue from within), a minimum guarantee threshold for account holders’ liquidity of 100 thousand euros per account holder per bank has been set, in the event of the latter’s bankruptcy. Any excess sums are to be considered lost, barring any recoveries to be distributed among creditors or interventions by the government.
#2. The 100,000 threshold in Italy
Returning to the reason that led me to write this text, is the minimum threshold of 100 thousand euros solid in the event of a bank failure? Or rather, can I rest easy if my liquidity does not exceed that value? Yes in my opinion, even if mathematics would suggest otherwise.
In Italy, the Interbank Deposit Protection Fund (FITD) protects the guaranteed threshold , but according to an article in Il Sole 24 ORE , it only has reserves of 3.3 billion euros in 2022.
It is estimated that by 2024, this fund should reach a value of around 6 billion euros.
Of a total of 739 billion euros deposited under the threshold of 100 thousand euros in current accounts protected by the FITD, it would appear that only 0.45% would be truly protected. A figure that would rise to 0.81% if the fund were to reach the 2024 target.
So, if mathematically the fund could not insure current accounts below this threshold, in the event of a system crisis or the bankruptcy of a large credit institution, how would we feel safe?
Simple, because otherwise it would be such a huge, explosive and damaging scandal to the credibility of the banks, the State and in general of the entire financial system, that it would severely undermine trust in them for decades to come, perhaps even centuries.
The government, the European Union or the banks themselves would then find a way to ensure that the minimum guarantee threshold is respected, whatever the cost. In short: too big to fail, the same motto applied to some banks to stem the subprime mortgage crisis.
#3. Counter-information, disinformation
Before concluding, I would like to clarify one point. I have heard more than once some self-styled economists and “professional” gold sellers promoting themselves in the channels of counter-information.
Many of them say that when some Italian banks went bankrupt, account holders lost all their money, but that is not true. This is a narrative aimed at terrorizing the listener in order to sell their product more easily.
The truth is that no account holder has ever lost money below the minimum threshold of 100 thousand euros, in fact no account holder has ever lost money above that threshold either, as far as I can tell.
Account holders who lost money had invested in risky securities due to dishonest disclosure of risks and rewards by banking operators to their customers.
Certainly this is a problem of trust in the banking system, but there is no significant correlation between lost liquidity and the failure of credit institutions.
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