Morningstar DBRS Assigns "A" Long-Term Issuer Rating to Fondo Interbancario di Tutela dei Depositi, Positive Trend

DBRS Ratings GmbH (Morningstar DBRS) assigned a Long-Term Issuer Rating of "A" to Fondo Interbancario di Tutela dei Depositi (FITD or the Fund) and a Short-Term Issuer Rating of R-1 (low), both with a Positive trend. At the same time, Morningstar DBRS assigned a Long-Term Senior Debt Rating of BBB (high) to FITD with a Positive trend.

KEY CREDIT RATING CONSIDERATIONS
FITD' s ratings reflect a very high degree of essentiality due to the Fund's key role within the safety net of the Italian banking system, along with its capacity to obtain mandatory contributions from member banks by law. Moreover, FITD has a good track record of implementing effective precautionary bank-related support in constant cooperation with the Bank of Italy (BoI), which ultimately oversees, among other things, the Fund's interventions, internal regulations, the contribution risk-based model, and board members' professional requirements. These factors, along with FITD's public mandate to insure deposits, provide a strong government incentive to shore up the Fund, and underpin the very high implicit support from the Republic of Italy (Italy), rated BBB (high) with a Positive trend. FITD's issuer ratings are further enhanced by the European framework for banking regulation and supervision, the potential for direct or indirect liquidity support from the European Monetary authorities as the BoI is a member of the Eurosystem, and FITD's holdings of highly-rated government securities. FITD's issuer ratings reflect the Fund's capacity to pay bank deposit insurance claims. FITD's Long-Term Senior Debt Rating reflects its capacity to pay debt obligations, and is both equal to and constrained by the Italian sovereign rating.

The Positive trend on the ratings reflect the Positive trend on the Ratings of Italy's government. In addition, Morningstar DBRS expects that FITD will maintain a robust financial position to repay its liabilities mainly by contributions of its member banks. Since early July 2024, FITD's qualified available financial means (QAFMs or financial endowment), have been at or above the minimum target of 0.8% of covered deposits of the previous year.

CREDIT RATING DRIVERS
Any upgrade of the Republic of Italy's credit ratings would likely lead to an upgrade of FITD's credit ratings. The trend on credit ratings could return to Stable should the trend on the Republic of Italy's Long-Term Issuer Ratings be revised back to Stable.

FITD's credit ratings could be downgraded if one or a combination of the following occurs (1) evidence that the European Monetary safety net will not support the Fund's capacity to insure the deposits, (2) a significant decline in FITD's holdings of highly rated and geographically diversified assets; or (3) the credit ratings of the Republic of Italy are downgraded.

CREDIT RATING RATIONALE
Morningstar DBRS considers the Fund as a Government Related Entity (GRE). Despite its private-law consortium structure, FITD carries out a specific public policy role protecting deposits up to EUR 100,000 per depositor. Italy's legislation does not feature a clear government financial commitment towards FITD, nor does it state that the Fund benefits from a special legal status. Therefore, Morningstar DBRS assesses the government's relationship with the Fund based on an implicit, but very high support. If needed, the government could legislate a public facility for FITD that would be compliant with both the Core Principles for Effective Deposit Insurance Systems of the International Association of Deposit Insurers (IADI) as well as with the European Directive on deposit guarantee schemes (DGSs). Italy's institutional environment is strong and budgetary and political constraints are not expected to hamper potential public support.

FITD's Ratings Benefit from Its Mandate and Proactive Interventions

Morningstar DBRS assesses FITD's systemic importance as very high. FITD's mandate to guarantee depositors of its member banks is key to Italy's financial stability. This mandate is supported by monitoring member banks' risk position in cooperation with the Resolution and Crisis Management unit of the BoI. In this way, FITD is an important tool to maintain a very high level of trust in the banking system. In Morningstar DBRS' view, the Fund's critical and unique role to protect the social function of savings and to contribute to ensuring the stability of the banking system provides a very strong incentive to provide support. A failure of the Fund would have highly adverse implications for Italy's banking system and economy and would very likely generate a loss of confidence in the government's capacity to roll over its own obligations.

FITD`s systemic importance is reflected in three pro-active interventions implemented from 2019 until 2022. In particular, FITD's voluntary interventions have lowered the probability of paying out deposits and the subsequent potential large outflows of the Fund resources should banks under distress have been put under compulsory administrative liquidation or the BoI would have declared banks' deposits unavailable. To some extent, these interventions protected the Fund's resources. The last two preventative interventions saw FITD spending around EUR 2.0 billion protecting about EUR 12.5 billion of covered deposits but also around EUR 4.0 billion of uncovered deposits.

FITD's mandate makes the Fund extremely difficult to replace and this reinforces the motivation for potential government or central bank support. The Fund is estimated to guarantee about 86% of total covered deposits in Italy and in its 129-member financial institutions as of December 2024. Although this coverage excludes the cooperative banks that benefit from their own DGS, FITD represents the bulk of the total bank deposits in the system. Therefore, FITD operates as a de-facto monopoly, and no other entity exists that could readily perform the role of the Fund.

Banks' Mandatory Contributions Bolster FITD's Resources, But the Fund's Exposure is Sizeable

Morningstar DBRS assesses FITD's access to fiscal, policy and financial support as very high due to the reliability of the mechanism through which the Fund obtains resources. Although FITD does not receive funding directly from the government, its QAFMs, which represent segregated capital from the Fund itself, rely on the mandatory contributions set by law, in particular the banking law and statute. Not complying with the regulation would cause member banks to lose their banking licenses. Therefore, unless there is a large banking system crisis that prevents banks from contributing and/or leads to large deposit pay-outs, FITD is likely to maintain a robust financial position benefiting from members' premiums, particularly from the largest banks. Past interventions have not undermined FITD's capacity to increase the QAFMs which amounted to around EUR 6.043 billion as of March 2025, above the minimum requirement of 0.8% of covered deposits, with a buffer of EUR 158 million. In addition, the Fund has established a credit line with a pool of banks, amounting to EUR 3.5 billion that, if needed, could be activated swiftly. This reduces the risk of calling for extraordinary contributions from bank members to pay-out deposits in the case of a shortage of resources that could ultimately weigh on banks' income statements. This credit line is due to expire this year but will be likely extended again. The minimum regulatory requirement of covered deposits has been achieved and the amount of covered deposits could decline. Consequently, and provided that interventions in 2025 will not deplete the buffer, Morningstar DBRS does not expect further contributions from banks this year.

FITD's potential exposure is sizeable, due to the amount of deposits to cover, but Morningstar DBRS considers FITD likely to be more involved in handling less significant banks under distress, at the moment. This is because large banks, if declared failing or likely to fail, are likely to be considered by the resolution authority as of high public interest, and therefore subject to bank resolution. This is a different measure to protect deposits, through which the FITD has never been involved so far. Dealing with less significant banks reduces considerably the de-facto potential amount of deposits to pay out, for example in case of a liquidation. Less significant banks or groups accounted for around EUR 116.2 billion of covered deposits while significant banks held around EUR 619.3 billion of covered deposits as of December 2024. Moreover, the Fund has been proactive in early interventions which have further reduced the amount of pay-outs. Nevertheless, the current regulatory revision of the crisis management and deposit insurance framework (CMDI), proposed by the European Commission (EC), might lead to a more frequent involvement of the Fund in resolutions, particularly for small or medium sized banks with potential more resources to deploy. However, a final text on the reform of the CMDI has not been adopted yet, and EU institutions could take time to reach a final agreement. In Morningstar DBRS' view, this revision is unlikely to change the government's support to FITD, if needed, due to the important public mandate to insure covered deposits and, in turn, to preserve financial stability.

BoI's Oversight Bodes Well For FITD's Governance and Interventions

Despite not having representatives of the government on the board, the BoI's oversight of the Fund's activities, including its interventions. Moreover, the Fund's governance and the cooperation with the central bank support the effectiveness of the FITD's activities. The BoI approves FITD's statute, internal rules, interventions, the contribution risk-based model, and receives information, including the annual report, the funding plan, and the stress test results. Moreover, there is a constant flow of information regarding the monitoring activity of banks deemed more vulnerable according to the internal FITD risk-based model or by the surveillance department of the BoI. This will be further reinforced following the Supervisory Provisions of the BoI for DGSs published in November last year, which among other things, require a self-assessment on the adequacy of board members and specify the timing regarding the flow of information to receive. The BoI's provisions will likely require a change in FITD's statute. The Fund also benefits from the oversight of the BoI regarding the professional requirements of the statutory organs. Professional standing is important as the board and the executive committee are responsible, for instance, for deciding on contributions and on voluntary interventions, respectively.

The presence of a large number of bank executives on the board can to some extent raise potential conflicts of interest. Nevertheless, over the years, FITD has increased the presence of independent members on the board. The composition of FITD's bodies and the decision-making process is conducive to balanced outcomes. No bank or banking group can influence the Fund's decisions, as each board member has only one vote. Moreover, FITD has implemented through specific provisions in the statute, codes of ethics and internal procedures on interventions, sound governance rules to anticipate and handle under stringent conditions potential real or perceived conflicts of interest.

The Fund's Holdings of Highly-rated Government Securities and Potential Support from European Monetary Authorities Underpin FITD's Capacity to Insure Deposits

FITD's investment of QAFMs amounting to around EUR 6.043 million, or 0.83% of the deposit to cover, beyond the sound capacity to implement preventative intervention, is a key element to enable the fund to insure deposits. Moreover, FITD's portfolio benefits from a relatively high degree of geographical diversification, with almost 80% of total assets invested in securities other than the Italian sovereign. These comprise a large share of highly rated entities. In Morningstar DBRS's view, this helps mitigate risks associated with potential Italy's sovereign stresses.

Also, given FITD's role is systemically critical for Italy's financial stability, even with spillover beyond the country, Morningstar DBRS expects European monetary authorities will likely provide support to the entity if needed. Moreover, in a scenario of sovereign and banking sector stress, Morningstar DBRS expects FITD will likely benefit from external liquidity support in the form of potential loans provided by other DGSs. If it becomes necessary, Morningstar DBRS expects this to be accompanied by indirect support from European monetary authorities or other European institutions. These entities could indirectly provide lending to the Fund, for example with a potential new legislated and remunerated credit line to the Fund from the BoI, as other DGSs benefit from lending from their central bank in the Euro area. Alternatively, European institutions could provide support through the government to recapitalise the banking system limiting the demand on FITD resources or facilitate banks to easily provide contributions to the Fund. Given FITD's critical role within the Italian financial system and its overall liquidity position, its short-term issuer rating is mapped to the long-term rating scale in line with our typical approach to sovereign ratings (see Appendix E of the Global Methodology for Rating Sovereign Governments). This implies that we assign the highest possible short-term issuer rating with reference to the long-term issuer rating.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS   
Social (S) Factors  
The following Social factor had a significant effect on the credit analysis: Passed-through Social considerations, as the social factors affecting the Republic of Italy's credit ratings are passed-through to FITD.

Governance (G) Factors  
The following Governance factor had a significant effect on the credit analysis: Passed-through Governance considerations, as the governance factors affecting the Republic of Italy's credit ratings are passed-through to FITD.

Credit rating actions on the Republic of Italy are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of the Republic of Italy are discussed separately at https://dbrs.morningstar.com/research/452176.
 
There were no Environmental factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings at (16 May 2025) https://dbrs.morningstar.com/research/454196.

RATING COMMITTEE SUMMARY
The main points discussed during the Rating Committee include the relationship between the Italian government and the Fund, FITD's proactive interventions, the amount of QAFMs and the critical systemic role.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology is the Global Methodology for Rating Government Related Entities (2 June 2025), https://dbrs.morningstar.com/research/455464. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (16 May 2025), https://dbrs.morningstar.com/research/454196 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The sources of information used for this credit rating include ITD (Annual Report 2024 - February 2025, Statute - July 2024), International Monetary Fund (Financial Sector assessment Program - Technical note - Financial safety net and crisis management arrangements - August 2020), IADI (Core Principles for Effective Deposit Insurance Systems - November 2014 European Banking Authority, European Commission, European Central Bank, Bank of Italy (Disposizioni di vigilanza per I sistemi di garanzia dei depositanti - November 2024, Testo Unico Bancario), European Stability Mechanism. Morningstar DBRS considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

This credit rating concerns a newly issued financial instrument and newly rated issuer. This is the first Morningstar DBRS credit rating on this financial instrument and issuer.

Morningstar DBRS does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are under regular surveillance.

For further information on Morningstar DBRS historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: https://registers.esma.europa.eu/cerep-publication. For further information on Morningstar DBRS historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see https://data.fca.org.uk/#/ceres/craStats.

The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://dbrs.morningstar.com/research/456125.

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Carlo Capuano, Senior Vice President, Sector Lead, Global Sovereign Ratings
Rating Committee Chair: Thomas R. Torgerson, Managing Director, Global Sovereign Ratings
Initial Rating Date: 13 June 2025
Last Rating Date: N/A

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