In an attempt to restore market confidence, the Italian government has agreed to inject €5bn worth of taxpayers' money into two mid-sized regional banks, handing their good assets to Intesa Sanpaolo, one of Italy's main banks.
On Sunday 25 June, the Italian Economy minister, Pier Carlo Padoan, maintained he was intending to provide additional guarantees up to €12bn, for a total of €17bn, to cover the losses from the two banks' bad loans.
It is not the first time the Italian government has injected money into the bank, as €3.5bn was provided to the Veneto banks in 2016 through the Atlante fund. Government intervention was encouraged after the European Central Bank issued a warning stating that the two banks located into the prosperous northern Italian region were failing.
The government's move is the result of decree frantically drafted over the course of last week which has allowed the two Veneto banks and its employees to be part of Intesa Sanpaolo bank. However, the decree still needs parliamentary approval within the next 60 days to become law.
It should be mentioned, however, that it was assumed that private creditors would cover for bank losses rather than taxpayers. The Italian government's intervention was approved by the European commission late on Sunday, in consideration of the damages that the regional economies would have suffered otherwise. In recent years, Germany has failed to hide concerns for the instability of the Italian banking system and the country's unwillingness to address such problems.
Similarly, in recent weeks, Spanish bank Santander rescued Spain's Banco Popular.
At the same time, since the ECB took over banking supervision, the Italian government is currently undertaking a precautionary recapitalisation of Monte dei Paschi di Siena, the fourth largest bank in the country. Over the course of the last two years, the ECB pointed out the two Veneto banks needed to be rescued after a series of unwise loans, which also resulted into a financial mis-selling scandal. However, the length of time required for the intervention after the health check performed by the ECB in 2014, has raised concerns in regards to the competence of the supervision.
Finally, a Genoa-based mid-sized regional bank is considered a risk and may find itself being wound down.
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