Banking foundations: a powerful economic and social driver

Marie Melikov - Senior Program Manager of Degroof Petercam Foundation

This fifth instalment in our "Finance & Foundations" series looks at a type of foundation that is unique in Europe: the banking foundation. Created following the privatization and consolidation of the banking sector in Italy (and Austria) in the early 1990s, these foundations stand out due to their history and their distinctive role in the economic and social development of the regions from which they originate.

Notable examples include Fondazione Cariplo (the largest) and Fondazione CRT in Italy, and the ERSTE Stiftung in Austria.

I. Origin and creation of bank foundations

The origins of bank foundations trace back to the transformation of financial institutions into philanthropic organizations. In the early twentieth century, banks and savings banks in many countries were set up as non-profit organizations with the mission of collecting savings, offering credit and redistributing profits for philanthropic purposes within the local network. Following the legislative reform of 1990, known as the "Amato Law", which aimed to rationalize the Italian banking sector and encourage the merger of several regional savings banks, these institutions were divided into commercial banks on one hand and public interest foundations on the other. The latter inherited the mission to serve regional development. These foundations were endowed with shares in the new banks, which they gradually sold to build up and diversify their now autonomous capital. Today, 80% of the 86 members of these foundations own no more than 5% of the parent bank. Their total capital is estimated at 47 billion euros in 2022, distributing almost one billion donations to 21,000 organizations that year.

II. Specific features

Banking foundations are unique in that they play a dual role:

Shareholding foundations: the majority of them are now minority shareholder foundations. They therefore always have a governance role in the local roots of the banks concerned.

Distributing foundations use their income for philanthropic purposes focused on sustainable economic development and social and cultural action. In this way, they have become examples of local development agents.

They also follow specific governance principles and regulations governing their financial management: Opting for prudent asset management to preserve the integrity of capital, strict ESG criteria and investments aligned with their mission, such as microcredit, a debt ratio capped at 10%, and a ban on investing in derivatives, a limit of 30% of the capital in a group or individual company (hence the sale of shares in commercial banks when they are set up), a maximum of 15% in real estate (excluding public-interest real estate), stabilisation of long-term income based on standards and backed by a solid reserve fund and a principle of rotational governance.

Although banking foundations are in a minority in Europe, with around 90 foundations in existence, they have nevertheless become unavoidable because of the sums they represent and their model of local philanthropy. The Fondazione Cariplo, Italy's largest, has capital worth almost 8 billion euros, distributing an average of 150 million euros a year. In Italy, it is also interesting to note that there are significant regional disparities, with the north being richer in foundations and the south where they are almost non-existent. As these foundations are vital to the local third sector, their absence in the poorest regions posed a social problem. The banking foundations of the North therefore decided to pool their resources to create the "Foundation with the South", which exclusively finances social development in these regions. A model of cooperation between regions based on solidarity that has an impact on national cohesion. For example, this foundation is working to reduce educational inequalities between regions, thereby helping to improve the national average.

Conclusion:

Aside from the exceptional nature of their history, banking foundations can provide inspiration through their dual model of governance and distribution focused on local roots. In this respect, they are similar to the shareholder foundation models found in Scandinavian countries (see shareholder foundation article[JM4] ). Their evolution from a "charitable" activity to the role of agent of local development also demonstrates an interesting impact: the regions that benefit from a player such as these testify to the dynamism of their social and cultural economy. This is achieved with the guarantee of a major philanthropic funder present in perpetuity, serving as an essential link between the private and public sectors to address societal dysfunctions, catalyze resources and invest in social innovation, the environment and culture. In terms of their history, they are a reminder of the original philanthropic role of savings and access to credit in regional development. For regions that are lucky enough to have such a local player, it's a godsend and a source of pride, as the local communities affirm.

The Degroof Petercam Foundation is interested in local social initiatives and innovations throughout the European Union. As part of its DPF Award program , and to identify the best social innovations for employment, the foundation collaborates with several foundations that excel in their territorial action. Several banking foundations serve as "prescribers" for Italy.

Read our 2022 Activity Report for more information on our Foundation and our financial strategy.

We would like to express our gratitude to Professor Gian Paolo Barbetta from the Catholic University of Milan, director of the Evaluation Lab of the Fondazione Social Venture, for his valuable contribution to this article.

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