State intervention to support Italian banks cannot be ruled out, given the risk that difficulties might undermine trust in the nation’s financial industry, Bank of Italy Governor Ignazio Visco said yesterday.
“Given the risk that, in a context of high uncertainty, limited problems could undermine the trust in the banking system, a public intervention cannot be excluded,” Visco said in a speech at the Italian Banking Association’s annual meeting in Rome.
Visco, who is also a member of the European Central Bank’s (ECB) Governing Council, said the Bank of Italy was working “with the other authorities with determination to promote efficient market interventions” to support Italian banks.
“European regulations provide for the possibility of precautionary public interventions also on capitalization, with reference to the results of stress tests,” Visco said. “The current situation, thick with risks for financial stability, requests the readying of a state backstop to activate in case of necessity, fully respecting EU rules.”
Italian authorities are racing to shore up a financial system burdened by about 360 billion euros (US$398 billion) of troubled loans amid increasing pressure on Italian lenders from the ECB to clean up their balance sheets and tackle troubled loans that are undermining lending.
Italian Prime Minister Matteo Renzi is exploring measures to support Banca Monte dei Paschi di Siena SpA and other weak banks after Britain’s vote to leave the EU exacerbated a sell off in Italy’s lenders.
Italy is in talks with the European Commission on a plan to recapitalize Monte Paschi and other banks, according to people familiar with the matter.
Talks are stuck on whether creditors should face losses if taxpayer funds are used, they said.
Italy favors a precautionary recapitalization according to the EU’s bank-resolution rules, which allow governments to bolster lenders when capital gaps emerge in stress tests, they said.
As the talks drag on, Dutch Minister of Finance Jeroen Dijsselbloem, who is also chairman of the Eurogroup, told reporters in The Hague that Italian banks were not facing an immediate crisis.
“At a certain point, you need to take the losses, take precautionary measures that will cost money, and the bank, or banks, are going to have to do it,” Dijsselbloem said.
Monte Paschi is working “intensely” with authorities to quickly resolve its bad-loan burden, chief executive officer Fabrizio Viola said on Thursday.
Viola said Monte Paschi’s board reviewed the ECB’s draft request that it reduce its non-performing loans and the board agreed on a response, according to an e-mailed statement.
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