Central banks abandoning loose monetary policies has caused bank earnings from the interest business to swell considerably, and not only in Switzerland. Italy now wants a piece of the profits of its banks.
Italy is not the first country in the EU in which the high profits of the banks are arousing the covetousness of the tax authorities. For the time being, financial institutions in Spain and Hungary also have to pay a higher share to the state.
The government of Prime Minister Georgia Meloni is resorting to similar measures to finance expenditures elsewhere. A tax on excess profits of 40 percent is planned for this year and next on net profits from the interest business.
One-tenth of Profits Gone?
Rome expects revenues of under three billion euros ($3.3 billion) from this measure, according to a «Reuters» report citing anonymous sources.
Some analysts expect more. Experts at Italian bank Intesa Sanpaolo estimate profits from the interest differential business could exceed 13.5 billion euros this year. Bank of America analysts calculate the new tax could cost banks between two and nine percent of their profits.
Demand From the Right
Revenues from the new tax will be used to help mortgage borrowers and to reduce levies. Italy's Deputy Prime Minister Matteo Salvini said one only needs to look at first-half bank profits, helped by the European Central Bank's interest rate hikes, to realize the sums probably run into billions.
The country's right-wing government of the post-fascist Fratelli d'Italia party led by Meloni, Lega, and Forza Italia repeatedly criticized banks for not passing on higher interest rates to depositors.
The ECB's higher policy rates have given banks record profits, as lenders have been able to raise the cost of credit while deposit rates have risen more slowly and less sharply.
Central Bank Outflows
There was a discussion in Germany some months ago that higher deposit rates at the European Central Bank (ECB) were strengthening banks' balance sheets while reducing central banks' profits.
The news caused a slide in the share prices of Italian banks on Tuesday, with the shares of Unicredit down more than 7 percent in afternoon trading, and those of Intesa Sanpaolo losing more than eight percent. The Milan stock market index MIB fell by 2.5 percent.
Limited Swiss Effect
The subsidiaries of Swiss banks are likely to be affected by the Italian special tax only to a very limited extent. Their focus in Italy tends to be on asset management or investment banking, rather than retail, mortgages, and lending, where the interest rate spread business plays a crucial role. An inquiry by finews.com to the Swiss Bankers Association (SBA) still awaits a response.
The question is rather whether the massively improved interest margins of local banks will become a political issue in Switzerland. As can be seen from the semi-annual reports of retail banks, income in the interest business increased by a mid-double-digit percentage. The Swiss National Bank's (SNB) expenses for interest on sight deposits also reached 3.3 billion Swiss francs in the first half of the year.
