FACT-FINDING INVESTIGATION LAUNCHED INTO CORPORATE GOVERNANCE IN BANKS AND INSURANCE COMPANIES
PRESS RELEASE
PRESS RELEASE
BANKS AND INSURANCE COMPANIES: ANTITRUST AUTHORITY LAUNCHES INVESTIGATION
Structural links and unwillingness to upset each other’s position may reduce competition
The Italian Competition Authority, at its meeting on 28 June 2007, decided to open a fact-finding investigation into corporate governance in banks and insurance companies in the light of the numerous rule changes that have been introduced or are about to be introduced in the financial markets.
The investigation will analyse the relationship between competition and corporate governance by reconstructing an updated picture of the functioning of corporate structures in the banking and insurance industries. Attention will be focused on those factors, perhaps regulatory in nature, which may influence the degree of companies’ propensity to compete, on the nature and composition of corporate bodies including restricted committees having management or consultative functions, and on a number of aspects of business finance. These are elements that may have a significant impact on the efficiency and competitiveness of the financial markets, reducing the incentive to aim for productive efficiencies whose benefits could be passed on to consumers.
In the view of the Antitrust Authority, banks and insurance companies are less inclined to compete with each other than companies in other industries because of their ownership structures, the existence of pyramid structures and a web of cross-shareholdings and long-standing personal links.
The reduced propensity to compete becomes structural in the case of cooperative credit institutions (“popular” savings banks, credit unions etc.) and cooperative or mutual insurance companies, given the specific rules set for their governance.
These problems of competition may also have important antitrust implications in business finance as well as for the economy as a whole, given the “bank-centric” nature of the Italian economy: the links between the financing entity and the business beneficiary may in fact amount to a situation of effective control of the company or may facilitate the forming of an anti-competitive equilibrium in the markets in which the companies being financed operate. The risk may be accentuated by the fact that the entities providing finance are few in number, that they often operate as a pool and have numerous financial and personal links.
In the Authority’s view, this framework may facilitate the coordination of business activities or reduce the incentives to compete, making it more likely that anti-competitive accommodations may prevail in the markets.
Rome, 3 July 2007