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Stefano Francesco Fugazzi * (founder of ABC Economics) reports.

Sourced from this month’s issue of The World Of ABC Economics.

With the Panama Papers story breaking cover, you may be inclined to presume that the World’s largest unregulated private bank is headquartered in an exotic location and stewarded by a ruthless capitalist.

The above may indeed make a great script for a blockbuster movie; however, the truth is that the World’s largest unregulated bank is located in the heart of Rome and run by the Catholic Church.

The Istituto per le Opere di Religione (IOR), commonly known as the Vatican Bank, was established on 27 June 1942 by Papal Decree with the solemn duty to “serve the global mission of the Catholic Church by way of protecting and growing its customers’ assets and providing them with dedicated worldwide payment services. 

“In order to comply with this noble task that has been entrusted to the IOR by the Holy Father, the Institute must at all times ensure high-quality products and services, while assuring compliance with financial regulation.”

C Client location

‘Bona fide’ deregulation

Unlike most financial institutions, the IOR does not cooperate with the Basel Committee on banking supervisory matters, nor complies with Basel III capital and liquidity adequacy requirements.

The Vatican Bank only adheres to the Foreign Account Tax Compliance Act (FATCA), a United States federal law that requires U.S. persons, including individuals who live outside the United States, to report their financial accounts held outside of the United States to the U.S. Internal Revenue Service (IRS).

All other forms of regulatory and governance oversight are independently carried out  by the Holy See in accordance with the Canon Law.

Know your customer

According to the IOR’s latest set of published accounts, the Vatican Bank’s “customers are active in the mission or perform charitable works at institutions such as schools, hospitals or refugee camps.

C Counterparty type“Other customers are Institutional counterparties, employees and pensioners of the Vatican, Institutes of Consecrated Life and Societies of Apostolic Life and Dioceses.”

The IOR does not formally take on individuals without a relationship to the Holy See as customers, nor does it accept corporate clients; even so, as at December 2014 a sizeable proportion of assets (40 percent) was in the name of clients who were neither dioceses or religious organisations.

Approximately 88 percent of clients were based either in Italy (63 percent of total) or within the Vatican City State (25 percent).

Since 2013 the IOR has closed down nearly 5,000 customer accounts under pressure from international anti-money laundering regulators concerned about its use as a tax haven. In addition, 2,600 dormant customer relationships were ended in 2013 and a further 4,600 accounts were lost in 2014.

Yes, sometimes we can serve both God and Mammon

InvestmentsAs at 31 December 2014, the Vatican Bank reported exposures in trading securities for EUR 1.7 billion, mostly in sovereign (39 percent of total) and corporate bonds (56 percent). A further EUR 0.6 billion was invested in assets held to maturity, mainly comprising government bonds issued by European countries and bonds issued by supranational financial entities.

Additionally, the IOR recorded investments in precious metals totalling EUR 34 million, two thirds of which in gold bullion.

Profiting from bonds as “you can’t run the Church on Hail Marys”

In 2014, the IOR’s net profit was EUR 69.3 million (2013: EUR 2.9 million). The year-on-year movement was largely attributable to an increase in net trading income arising from securities coupled with a decline in extraordinary operating expenses.

The significant increase in net trading result was predominantly due to the positive performance of bond markets in 2014, compared to 2013, as a result of lower interest rates. Furthermore, in 2013 the IOR recorded significant unrealised losses on external investment funds, which were not repeated in 2014.

The Vatican Bank’s pension fund on a Highway to Hell?

According to the Vatican Bank’s accounts, an actuarial loss of EUR 33 million was recorded in 2014, a deficit which brought the overall pension obligation liability to EUR 124 million.

In August 2009 the Pope Emeritus, Benedict XVI, approved a pension reform bill increasing the retirement age to 67 and 72 for public servants and ecclesiastical personnel, respectively.

In July 2014 the Holy See unveiled plans to overhaul the IOR’s pension fund “to ensure there are sufficient funds for future generations in a changing environment.

In recent years, many Western countries – including the Vatican – have faced challenges in funding their pension system,” the Holy See concluded.

C Balance Sheet Liabilities C Balance Sheet

* Stefano Fugazzi graduated in 2003 with a BA in Business Studies. After successfully completing a Master in Strategic Management at the Michael Smurfit Graduate School of Business (University College Dublin) the following year, in 2005 he joined Merrill Lynch. Between 2007 and 2015 he worked at Schroders. Currently working for a boutique bank in Central London as a stress testing and risk management analyst.

In 2011 he completed a course in News Journalism at the London School of Journalism. In 2013 he founded the business news portal ABC Economics. He is the author of “Idee per l’Italia” (2013), “A.B.C. Italia – Abbiamo Bisogno di Crescita” (2014), “ABC Economipedia” (2015) and “Brexit?” (2015).

Over the years he presented, summarised and articulated in excess of 500 solutions aimed at revamping the ailing economies of Italy and Europe. More recently, he shifted his focus to global economics and launched ‘The a World of ABC Economics’, a publication which is issued on a monthly basis.



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