Investing in certificates

Households have recently reduced their investment in the bonds - debt securities - issued by banks for a number of reasons. On the supply side, loan growth has been weak: banks have had no incentive to sell securities/bonds to their customers to finance the slow increase in loans. On the demand side, bank bonds are not covered by deposit insurance.

Within/Under the category of bank bonds, certificates issuance has gained traction (see Banca d'Italia's note 'An analysis of debt securities issued and placed in Italy', only in Italian).

Certificates are debt securities issued by banks that include a derivative component: their value is linked to other underlying financial assets, such as shares, stock market indices, interest rates, currencies and commodities.

In June 2024, the value of certificates held by households was €56 billion, compared with €44 billion in June 2023 (see Financial Stability Report, 2, 2024); after public securities - such as BTPs and BOTs - certificates are the next most important bonds in household portfolios. According to Banca d'Italia's Survey on Household Income and Wealth (SHIW), approximately 10 per cent of households invest in certificates. These are mostly high-income households in a good financial situation.

Certificates can be bought and sold on the capital market and take different forms. Their capital can be fully or partially secured, but it can also be unsecured or even leveraged, i.e. capable of amplifying the gains (and losses!) of the underlying assets. With unsecured certificates, both the complexity of the contracts and possible price fluctuations expose savers to losses when adverse events occur. Only sophisticated investors should consider investing in certificates. Those who buy them must understand their risk-return profile and the structure of the fees charged by banks.