«They say things are happening at the border, but nobody knows which border» (Mark Strand)
by Jacopo Paoloni and Madjid Tavana
Abstract: In the last two years the effects of the Covid-19 pandemic and the Russian-Ukrainian conflict, have severally impacted the Italian socio-economic system as well asexacerbated the weakness of its banking sector. In the current scenario it seems legitimate to foresee a further increase in credit demand and in the rate of deterioration of loans, with a consequential increase in expected losses. Italian banks stillhave business models that are more oriented towardstraditional banking activities with low added value (i.e. the supply of credit) and very limited income performances.Given that in Italy the banking market is mature and subject to strong competitive pressures (also coming from non-banking players), it’s necessary to review business models with a view to reducing complexity, achieving a radical diversification of revenues as well as a drastic containment of costs. The goal is to redirect banking activity towards a less risky fee-based operation which generates stable revenues without absorbing risk capital, to be pursued through the adoption of new digital technologies. This new consultancy model should be based on the portfolio and on the integration of the product-logic with a customer-logic, focused on the enhancing the relationship with the costumer and of high-value banking services as part of a partnership banking fiduciary relationship that draws margins from commission income.
Summary: 1. Introduction. – 2. Covid-19 and the Russian-Ukrainian conflict. The role of banks in supporting the national productive system. – 3. What does the future hold for Italian banks?
1. In the last two years the national socio-economic system was tragically impacted by the devastating effects of the Covid-19 pandemic, which, before evolving into an endemic health phenomenon (officially from the first months of 2022, despite the excessive optimism underscored by the summer backlash), claimed well over 160,000 lives (while globally over 15 million) and caused a fall in GDP in 2020 of over 8.9% (over 200 billion euros), with a budget deficit growing to 9.6% of the GDP compared to the 1.5% in the previous year.
The extent and rate of the recessive phenomenon had never been recorded in our country since the Second World War, and it perfectly illustrates the enormous difficulties that the country has faced and is still called to face.
If in 2021 there was a clear recovery of the main indicators of the “state of health” of the national economy (GDP + 6.6%, which is still very far from the pre-pandemic values), the explosion of the Russian-Ukrainian conflict in the first months of 2022, and the consequent imposition of a stringent sanctions regime on the aggressor country resulting in a discontinuous supply of the multiple key products of which said country is the main global producer, has inevitably exacerbated the weakness of a productive and financial system which hasn’t completely recovered from the destructive consequences of the previous economic situation.
The estimates relating to the evolution of the national GDP for the years 2022 and 2023 have therefore been revised downwards by the Bank of Italy (Economic Bulletin No. 3 of July 2022, the salient contents of which have been shared by the MEF and are the most up-to-date forecast data processed by a national institution of primary importance to date), settling at + 3.2% for the current year  and + 1.7% for the following year (in both cases still determined, for the most part, by domestic demand, as well as by budget policies and by the interventions outlined in the PNRR-Next Generation EU), with inflation at 7.8% (6.4% according to Istat, but in any case never so high since 1991) and 4% respectively.
2. In order to counter the effects of the Covid-19 pandemic on the national production system, the Italian banks had to reluctantly play the risky and complex role of channellers of liquidity between the State and the national production system, as well as of ultimate decision-makers in the financing and re-financing operations of businesses and households.
In addition to the financial assistance programs launched by the European institutions in support of the countries and banks of the Union, the various successive governments in Italy starting from 2020 have repeatedly intervened to support the domestic economic-financial system, both directly, with instruments such as the redundancy fund in derogation or by postponing tax deadlines, and indirectly, by granting guarantees on loans by banks to companies and individuals to assist them in overcoming the liquidity issues generated by the lockdown as well as to support their recovery.
If managing Non-Performing Exposures has been a crucial issue for Italian banks for years, since 2012 banks have planned and implemented burdensome plans to dispose of the stock of impaired loans held in their portfolio, following the pandemic crisis, non-performing loans returned to undermine the stability of the entire financial system, risking dangerous accumulations in bank balance sheets of thousands of ratings with a serious risk of downgrading with a consequent loss of turnover and compromising the fundamental debt ratios.
On the one hand, the pandemic crisis has made managing loans in the balance sheets of banks particularly problematic, amplifying the risk of deterioration in Unlikely to Pay (UtP) and Non-Performing Loans (NPL) even of positions that originally were not suspicious in terms of collectability, on the other hand, the main source of financing that the national authorities favoured to support the productive system was constituted by further forms of bank debt, granting it inevitably depended on the reduction of credit access criteria and therefore heralded an increase in the number of potential insolvencies, significantly affecting the profitability of the granting institutions (in this regard, all the banks in the Eurozone recorded an increase in emergency requests for loans and / or the use of credit from corporate customers in 2020 and 2021).
In this adverse scenario, the work of Sace and MedioCredito Centrale in guaranteeing the exposures of credit institutions to households and businesses has therefore proved to be fundamental for the effective “survival” of the entire banking sector.
However, in the months immediately following the pandemic outbreak the main European banking authorities underlined their role as facilitators so that the community institutions could contribute to the economic recovery, granting them adequate time frames to replenish the capital cushions used to guarantee credit to the real economy.
In particular, the Single Supervisory Mechanism, the operational arm of the Eurozone Banking Supervision, has granted some fundamental exemptions to credit institutions with regard to the application of prudential rules for the classification of debtors as Unlikely to Pay in presence of public guarantees in the emergency Covid-19context, so as to incentivize the institutions themselves to continue to finance households and businesses as well as avoiding that the rigid supervisory rules could determine uncontrolled pro-cyclical effects (in practice, non-performing but covered from public guarantees have benefited from a “preferential” prudential treatment in terms of supervisory procedures with regard to provisions for losses in the financial statements). Furthermore, the same Authority has guaranteed maximum flexibility vis-à-vis EU banks for the implementation of the most appropriate disposal strategies for the NPLs held in the portfolio, taking into account the extraordinary nature of the market conditions generated by the pandemic.
A specific set of measures for the protection of bank capital was then added to these credit risk mitigation strategies. The overall capital buffer freed from the possibility of operating under the Second Pillar guidelines (Pillar-2-Guidance, which indicate to credit institutions the minimum level of capital to be maintained in order to adequately counteract any stress situations), and the simultaneous “loosening” of the rules on the composition of the requirements, made it possible to “free” about 120 billion euro of CET1 capital. This “buffer” was available to EU banks to absorb any losses without triggering supervisory actions, or to potentially finance up to 1,800 billion euros of loans to households and businesses.
Rebus sic stantibus, it appears evident that in a macro-economic framework that isn’t completely restored from the destructive effects of the Covid-19 pandemic, the consequences of the Russian-Ukrainian conflict (which, at the time of writing – August 2022 – and on the basis of what was analysed in the previous paragraph, are in any case far lower than those caused by the pandemic), which exploded violently in February 2022 and whose duration is very uncertain to predict, could realistically affect the difficult balances laboriously achieved by the system national credit in the last decade, if, and to the extent that, the safety net previously prepared by the European institutions (primarily the ECB) should fail.
Although in fact both Russia and Ukraine have a relatively modest weight in terms of production (and as we will see also the share of imports of Made in Italy products and services appears relatively negligible, ranging between 0.5% and 1% of national exports), and cumulatively represent less than 2% of world GDP (likewise, the stocks of foreign direct investment in Russia and Russian direct investment in other economies represent less than 1.5% of the global total), are instead the main world exporters of essential food goods (in particular wheat, of which the two countries cumulatively account for 30% of world exports), of raw materials (in particular palladium, nickel, steel, platinum, argon, neon, titanium, copper and uranium) and energy commodities.
The conflict therefore affected the global markets for the supply of the aforementioned goods, resulting in considerable and prolonged price shocks (motivated considerably by the work of international financial speculation as well as by the generalized decline in confidence that has dulled companies and households), which, together with the effects of the bottlenecks that align practically all the production chains of consumer and investment goods, have finally had repercussions on global value chains, with a generalized increase in inflationary pressure and a corresponding slowdown in growth of practically all industrialized countries (as clearly shown by the forecast values of the main macro-economic indicators reported in the previous paragraph).
The effects on Italian companies (and indirectly on banks, which are their main financiers) brought about by the substantial blocking of exports to Russia caused by the sanctioning regime imposed by the West, currently concerns less than one billion euros of sales and is equal to about 15% of national exports in the country (7.7 billion euros in 2021), which in turn represents about 1.5% of total national exports (the influence of Ukraine on Italian exports is even lower, being less than 0.6% of total exports). However, it is important to highlight how the impact of the sanctions is not equally distributed among the different production sectors (for some specific productions, such as machinery and clothing, the weight of the Russian market exceeds 10% total) and the different areas territories (75% of Italian exports to Russia come from Lombardy, Veneto and Emilia-Romagna).
Mirroring this scenario, if the Italian banks’ credit-financial relations with Russia appear limited both in qualitative and quantitative terms (although in Europe they are among the most present on the Russian market, while being completely marginal in Ukraine), recording business for about 30 billion euros, about 1.5% of the national GDP, highlights that the aforementioned sanction regime has affected banks and individuals, causing considerable difficulties in carrying out international payments, reducing access to foreign capital and freezing the foreign exchange reserves held by the Russian central bank in third countries, with a consequent increase in the risk premiums on sovereign debt given the real possibility of default of the country (in particular if the conflict is extended over time).
In light of the above, in the immediate and near future it seems legitimate to foresee a further increase in credit demand, and it is equally clear that such a contingency can only raise the attention threshold for a more than likely increase, in the absence of implementation of specific support activities mirroring those already perpetrated by the national government and the community institutions to counter the effects of the Covid-19 pandemic, of the rate of deterioration of loans and the problems intrinsically connected to recovery activities, with a consequential increase in expected losses and therefore in the value adjustments related to them.
Therefore, if Italian banks, albeit to different degrees, must necessarily prepare for a sharp deterioration in credit quality, particularly in some productive sectors, which will unfold its effects over the years (but which, as aforementioned, in terms of volume and propagation speed should be lower than that caused by the pandemic crisis of 2020), while the strategies that might be implemented by the Community institutions, primarily the ECB, to support the Union credit system, are more difficult to foresee.
In particular, in light of the guidelines recently expressed by the Central Bank, it seems unlikely that the same “approach method” and the same tools used to counter the effects of the economic shock can be replicated for the current economic situation – financial from Covid-19, both in quantitative and qualitative terms. At the time of writing (July 2022), the ECB’s efforts are exclusively focused on countering the strong inflationary tensions that began to impact the countries of the Union already at the end of last year and to which the Russian-Ukrainian conflict has impressed a drastic acceleration (for 2022 Eurostat estimated an inflation rate in the Eurozone of + 8.6%), as well as to support the current value of the common currency, subject to a progressive depreciation in recent months against almost all “competing” currencies. An example of this was the “tightening” of monetary policy perpetrated by the ECB on 21 July, with an increase in interest rates of 0.5% (for the first time in 11 years) and the most realistic prospect of a further increase in September 2022.
With the European Central Bank currently brought back to the orthodoxy of its original functions (first of all, guaranteeing monetary stability), and therefore to the lack of much of the bazooka ammunition that the previous Governor Draghi had prepared since 2012 to ensure an adequate financial assistance to the countries of the Union and in particular to Community credit actors who were in difficult conditions, we believe the policies of the competent banking supervisory bodies in the near future to be of fundamental importance.
In particular, we are confident in the confirmation of the “preferential” prudential treatment with regard to provisions for losses relating to non-performing loans covered by public guarantees (and that, hopefully, this “favorable” regime can also be extended to unsecured exposures), and that likewise, for an appropriate period of time, a high degree of permissiveness is still granted to community banks in the application of prudential rules with regard to the classification of debtors as Unlikely to Pay (and not only in the presence of public guarantees), so as to incentivize credit institutions to persevere in their mission as ultimate lenders to households and businesses. Equally important is the guarantee of maximum flexibility in the implementation of the most appropriate disposal strategies for the NPLs held in the portfolio, as well as the temporary maintenance of a certain degree of “tolerance” with regard to the determination of the aforementioned mandatory capital requirements.
Moreover, even leaving aside the specificities of the current possibilities, in our opinion it appears to be desirable that some regulatory aspects of the Banking Union, in particular those concerning prudential parameters and supervisory criteria, are subject to review in the near future with a view to greater tolerance, both in favour of the economy of the granting banks and of the national productive system which derives irreplaceable support from the latter. Again, we consider it appropriate to re-discuss the budgetary obligations to which banks are subject in the EU, given that their role will be absolutely central in providing liquidity to the economic-productive system and inevitably the mass of Non-Performing Exposures that the national credit system will reluctantly hold in the coming months and years will only increase, thereby at least temporarily nullifying, as noted above, the long and difficult path undertaken for more than a decade by Italian banks to restore their balance sheets to performing status by progressively eliminating large amounts of impaired loans.
In conclusion, if the combined effects of the post-pandemic from Covid-19 and the Russian-Ukrainian conflict on the bottom line of bank balance sheets are expected to be rather uncertain, with the risk that a good number of European institutions could close the year in loss and with reduced customer profitability, it appears evident that national banks need to intervene on production costs and at the same time radically innovate their business model.
More precisely, in our opinion, the future of credit intermediation in Italy will necessarily have to be based on the following guidelines, which are intimately related and have significant effects on the overall corporate profitability: i) technological innovation with associated digitization and computerization of the core business; ii) restructuring of business models; iii) adaptation of governance models to current and forthcoming legislative and regulatory dictates both at national and EU level; iv) drastic reduction in production costs (in particular those not associated with indispensable investments in new technological infrastructures); v) as a natural consequence, an inevitable increase in company size.
The digitization and computerization process in particular, is not only permeating the entire credit-financial industry but also undermining, by incentivising disintermediation of transactions and the progressive but radical shift of the operational centre of gravity on FinTech services, the substantial monopoly held for decades by banks in supplying end customers with a multitude of more or less complex products.
3. In the current scenario, the institutions that have business models that are more oriented towards the supply of credit, and more generally focused on traditional banking activities with low added value, are also those that have the most limited income performance as well as a constant erosion of revenues from intermediation, and if the possibility of an increase in revenues related to retail credit appears very limited considering that in Italy this market is now mature and subject to strong competitive pressures (also coming, as aforementioned, from the new non-banking players), forces the need to review business models with a view to reducing complexity, achieving a radical diversification of revenues as well as a drastic containment of costs.
If already starting from the mid-nineties of the last century the activity of banks in the various sectors of the national credit system began to be eroded by markets and non-financial intermediaries, specifically by an overabundance of online banks that competed above all on collecting savings and to which were then added the financial promotion networks as well as the structures specialized in private banking (which structurally absorb less fixed resources than traditional banks), this process of support / replacement by Hi-Tech companies has gained momentum with the payment services business (liberalized in 2018 within the EU with the Payment Service Directives 2) and then embraced the investment and credit area, with the aim of breaking down packages of financial products and services which until recently could only be purchased from bank intermediaries through the use of innovative data analysis technologies (such as artificial intelligence – AI), designed to process, with appropriate algorithms, the personal information that individuals and companies, sometimes unwittingly, spread on the web (so-called Big Data), and finally investing all sectors of banking and financial intermediation: payment services (instant payment), financing services (crowd-funding and peer-to-peer lending), consulting services and cryptocurrencies, in addition of course to technologies to support the provision of services (cloud computing and big data) that make it possible to reduce the costs of processing and storing information.
A similarly growing ability of the user to use modern technological tools will then contribute to making the “traditional” banking interlocutor almost superfluous, just as the transactional function (i.e. cash management) will play a progressively reduced role in the overall economy of credit. In fact, the new Fintech companies, unlike traditional banks, carry out a series of disintermediation activities of the entire sector, playing the role of direct trait d’union between supply and demand through specific IT platforms therefore exposing themselves much less to traditional credit risk.
Moreover, if the growing presence of non-bank players in the credit market, and specifically of BigTech companies (i.e. the giants of electronics, online commerce and the Internet) operating through multi-channel and multi-customer digital platforms, represents a clear threat to the survival of traditional banks, on the other hand the new information management technologies can clearly concurrently offer significant opportunities, provided they support the high investments in technological infrastructures and specialized skills for human capital, while enhancing the resources that have always been the heritage of traditional banks, such as the costumers’ trust derived from personally knowing them and knowing that they have always been rigidly regulated and supervised.
Bank branches will therefore have to drastically change “skin” in the name of technology as well as user-experience, with the consequent reorganization and rationalization of the distribution networks, and jointly the role of banking personnel will change (amplifying a trend already underway in Italy), who must be specialized in consulting with regard to highly complex financial transactions and products. In fact, those who need to carry out “basic” branch operations will be able to turn to modern ATMs and on-line channels of home banking (with a reduction in customer influx in the branch and associated effects on the cost structure due to the progressively redundant staff), while the remainder will have to be able to take advantage of high value-added consultancy from branch staff.
Ultimately, the goal is to redirect banking activity towards a less risky fee-based operation, with higher margins and high added value (revenues from other service activities, commissions and trading, and more generally from fees of any kind) which generates stable revenues without absorbing risk capital, to be pursued through the adoption of new simple digital technologies as well as increasing and enhancing: i) cross selling on highly diversified products (not only financial products, therefore, but also social security, insurance and wealth management, which for some years now have been included among the core components of banking activity and no longer among considered ancillary, to the point of having generated the neologism of bancassurance); ii) the offer of placement services on the bonds and shares market of small and medium-sized enterprises (including granting guarantees on the financial market); iii) asset management services (investment and private banking) and transaction banking (cash management and trade finance).
It is therefore a consultancy model based on the portfolio and on the integration of the product logic (or rather, of the factory-product) with a customer logic focused on the enhancing the relationship with the costumer and of high-value banking services as part of a partnership banking fiduciary relationship that draws margins from commission income which, unlike interest income and brokerage margin, accrue only with an “open bank” and do not (normally) generate losses nor do they absorb risk capital. To this end, the challenge posed by the new market players consists in responding to the specific needs of individual customers through articulated solutions that exploit efficient and tailor-made technological platforms, so as to guarantee a simple and intuitive user-experience by combining the advantages of technological innovation with the importance of a direct customer relationship.
Finally, the trend towards commoditization of the financial system by transitioning, from a digital perspective, from transactions to services, indicates that the challenge of the banks of the future is to turn themselves into “tech companies with banking licenses” revolving around a digital culture that is able to position the business towards a new customer relationship, focused on services with greater added value that go beyond the traditional banking offer, within an increasingly dynamic and competitive system as a result of open-innovation and an intelligent use of Big-Data.
 With reference to the Eurozone, in the January-June period, Brussels cut growth forecasts from 4% to 2.7% for 2022 and from 2.8% to 2.3% for 2023.
 Please note that the aforementioned projections have been updated by the Bank of Italy in relation to the unfolding of the current economic situation on the basis of the most probable evolution of the Russian-Ukrainian conflict (so-called base scenario), according to which a progressive slowdown should occur until war operations exhaustion by the end of 2022 as well as the complete maintenance of energy supplies (except for temporary cuts for “demonstration” purposes) by Russia. But in view of the high unpredictability of the current geo-political context, the domestic macro-economic prospects are subject to pronounced downside risks should the so-called adverse scenario, which assumes the continuation of the conflict throughout 2023 and / or the total blocking of exports of energy commodities from Russia to EU countries (with consequent production interruptions in industrial activities characterized by higher energy intensity, higher increases in raw material prices and a stronger impact on the level of confidence of market participants). In this hypothesis, there would be an increase in GDP of less than 1% already in 2022 (with inflation at 9.3%), and a decrease by 2 percentage points in 2023 (with inflation at 7.4%).
 Non-Performing Exposures are distinguished on the basis of the different probability of credit recovery at maturity: 1) past due and / or overdue exposures (Past-Due), exceeding the credit limits by over ninety days; 2) unlikely to pay (UTP), that is the exposures with respect to which the bank considers it unlikely that the debtor will be able to fulfil in full without recourse to legal guarantee actions; 3) actual non-performing loans (Non Performing Loans – NPL), that is, exposures to debtors in a state of insolvency or equivalent.
 According to the European Banking Authority (EBA), in September 2018 the total value of Non-Performing Loans held by Italian banks amounted to approximately 297 billion euros (37% of the total NPLs present in the Eurozone banking system), and Italy was the fourth country in the Union for the ratio between NPLs and total credits (11.8%, against 22% in 2015). According to data from the Bank of Italy, between 2009 and 2015 the stock of non-performing loans had almost quadrupled (from 87 to 341 billion euros), and only began to decline in 2016. Between 2012 and 2017, the national banking system also accumulated write-downs from NPLs for approximately 64 billion euros.
 The sharp increase in the level of uncertainty penalizes the investment decisions of businesses and household consumption. The uncertainty index for Italy grew by 21% in the first quarter of 2022, but is realistically destined to increase further. In the first four months following the pandemic burst (March-June 2020) the increase was over 60% compared to the previous twelve months, in those following the failure of Lehman Brothers in 2008 it increased by 30% and after the attack on Twin Towers of 2001 by 85%.
 The increases in oil, gas and coal prices alone are leading to a proportional increase in the incidence of energy costs on the overall costs of production of goods and services, which are estimated to increase by over 70% from 4.6% in the period. pre-pandemic to almost 9% in 2022 (Centro Studi Confindustria – April 2022). This impact would translate into an increase in the Italian energy bill of almost 6 billion euros on a monthly basis, and of over 70 billion on an annual basis. The sectors most affected would obviously be the most energy-intensive ones, such as metallurgy (where incidence could reach 23%) followed by productions linked to non-metallic minerals (concrete, glass, ceramics), wood and plastic processing, but the increases would cascade to practically all product sectors, with a consequent compression of the purchasing power of families and therefore of consumption (so far the main driver of the post-pandemic recovery). This widespread uncertainty (in addition of course to the generalized increases mentioned above) also blunts the investment decisions of companies (especially in plant and machinery), which are expected to slow down sharply for 2022.
 Data published by the Ministry of Foreign Affairs and the Confindustria Study Center in April 2022.
 The Bank of Italy’s Financial Stability Report estimates that for each reduction in GDP by one percentage point (the other variables considered constant), the flow of new impaired loans in relation to total performing loans tends to increase by 0.2 basis points for businesses (clearly these assessments, based on historical regularities, do not consider the effects of legislative measures on moratoriums and public guarantees on loans granted by credit institutions). Bank of Italy, Financial Stability Report, no. 1, 2020.
 The ECB, led by Governor Lagarde, terminated or suspended the following financial assistance programs for credit institutions in EU countries in 2021 and early 2022: i) Targeted Longer-Term Refinancing Operations (TLTRO), thereby meaning open market operations aimed at providing long-term liquidity to Community banks by giving loans with a maximum duration of four years with fixed rate auction procedures; ii) Pandemic Emergency Longer-Term Refinincing Operations (PELTRO), operationally mirroring the previous one but specifically aimed at countering the pandemic emergency and giving further and greater support to financial institutions in the euro area in providing liquidity to production activities; iii) Asset Purchase Program (APP), aimed at acquiring on the market not only public debt securities of EU countries but also private securities, covered bonds and Asset Backed Securities in order to reduce maturity mismatches existing between long-term loans (assets) and short-term deposits (liabilities) as well as favouring a decrease in the yield spreads on these instruments; iv) Pandemic Emergency Purchase Program (PEPP), mirroring the previous one but specifically aimed at countering the pandemic emergency; v) Quantitative Easing (QE), launched in 2015 and aimed at the long-term and large-scale purchase, from banking counterparties and / or other private institutions, of financial products with extensive maturity (government bonds, covered bonds, bonds companies, etc.), in order to support the market price and therefore reduce its yield, as well as incentivizing the beneficiary intermediaries to lend excess liquid funds on the interbank market, or to households and businesses, rather than deposit them with the Central Bank .
 Furthermore, in our opinion, the transformation process of the banking sector should correspond to an equally (if greater) radical transformation, in terms of vastness and capillarity, of the composition of the national productive fabric, whose economy, as noted in the previous paragraphs, is equally under pressure, for more than a decade, due to past and ongoing systemic crises. An economic-productive system based on small and very small dimensions, in fact (in Italy in 2020 there were 4,300,000 micro-enterprises – equal to about 95% of the total, 160,000 SMEs and less than 3,000 large enterprises. in Germany in the same year 2020 there were 2,650,000 micro-enterprises; 350,000 SMEs; 11,000 large enterprises, while in France 2,350,000 micro-enterprises; 170,000 SMEs; 6,000 large enterprises), it is intrinsically fragile and constantly prone to adverse economic phases, and its peculiar characteristics of low capitalization in terms of risk, high insolvency and bankruptcy rates as well as minimal diversification of funding sources with the almost exclusive recourse to bank credit (rather than the capital market or non-bank intermediaries), make it unique in the European panorama but at the same time constitute its stigma.
 The term Fintech comes from the words “finance” and “technology” and can be literally translated into the generic formulation of “technology applied to finance”, meaning “financial innovation made possible by technological innovation, which can materialize in new business models, processes or products, producing a decisive effect on financial markets, institutions or the offer of services.” Financial Stability Board, Fintech credit Market structure: business models and financial stability implications, 22 May 2017; Bank of Italy, Fintech in Italy. Fact-finding survey on the adoption of technological innovations applied to financial services, December, 2017.
  Draghi M., Banche e mercati: lezioni dalla crisi, Banca d’Italia – Documenti, 2009, pp. 1-23.
 Oriani M., Zanaboni B., Trattato di Private Banking e Wealth Management, Vol. 2, Hoepli, Milano, 2016, p. 117
 Panetta F., Fact-finding survey on issues relating to the impact of financial technology on the financial, credit and insurance sector, Hearing at the Finance Commission of the Chamber of Deputies, 29 November 2017; Rossi S., Ideas for the future of the Italian financial system, Courmayeur, 23 September 2017.
 An alignment of the penetration of digital banking in Italy to the European average would allow national banks to reduce operating costs by 5-6 billion per year at the system level, with the related closure of branches and employee cuts. Graziani A., “70 thousand redundancies to align themselves with the EU”, Il Sole 24 Ore, 13 November 2018, p. 18.
 In light of the most recent data published by the ECB, relating to 2020, Italy still has the highest distribution capillarity, with 50 branches per 100,000 inhabitants against 34 of the European average, but in the 2008-2019 period there was a 13.8% reduction of branches while the number of employees decreased from over 340,000 to less than 300,000.
 Ferrari P., Ruozi R., “Le banche italiane e la sfida della redditività”, Banche e Banchieri, 44(2), 2017, pp. 163-186.
 De Polis S., Evoluzione dei modelli di partnership tra banche e assicurazioni, Convegno 3 ottobre 2018, Roma.
Jacopo Paoloni is Research fellow at Roma Tre University
Madjid Tavana is Professor and Distinguished Chair of Business Analytics at La Salle University of Philadelphia
The entire work has been thought and discussed by both authors; however, paragraph 1 is attributable to Madjid Tavana, while paragraphs 2 and 3 are attributable to Jacopo Paoloni.