€20 billion fund approved to bolster Italian banks
(17 February 2017 – Italy) Italy’s parliament has approved a law to inject €20 billion (A$27.7 billion) into troubled lenders as part of the nation’s efforts to revitalise its banking industry.
The lower house approval the legislation this week, following the decree law passed by Prime Minister Paolo Gentiloni’s cabinet in December.
The law includes emergency liquidity guarantees and capital injections for struggling lenders in compliance with state aid rules. Banks will be able to request precautionary recapitalizations that would see some bondholders take a hit.
Monte Paschi was the first bank to seek funds under this new program after it failed to raise fresh money from investors in December. The European Central Bank said the Siena-based lender must raise €8.8 billion to sure up its balance sheet under a precautionary recapitalisation plan that Monte Paschi itself requested.
Over €360 billion in bad loans are placing stress on Italian banks, and have eroded profitability and undermined investor confidence. Nationalising Monte Paschi, Italy’s biggest since the WW1, could be followed by bailouts of other lenders including Veneto Banca SpA and Banca Popolare di Vicenza.