ROME Italy will use a new system set up by its central bank to save four small savings banks from failure before stricter rules for winding down lenders come in next year, banking sources told Reuters.
The rescue will be conducted by the Bank of Italy at a cost of at least 3 billion euros ($3.19 billion), the sources said. This will be borne by the country’s healthy banks, which pay into a newly-formed National Resolution Fund, not by taxpayers.
Italy wants to save the banks before January, when new EU rules take effect under which bank shareholders and bondholders, as well as depositors with more than 100,000 euros will have to bear losses before public money can be used to prop up a bank.
Banca delle Marche, Banca Popolare dell’Etruria (PEL.MI), Cassa di Risparmio di Ferrara and Cassa di Risparmio di Chieti, were all put under special administration in the last two years after audits exposed holes in their accounts.
The lenders are not big enough to pose a systemic risk to the banking system, but Rome fears that under the new rules a rescue could entail losses on bonds sold to retail clients.
The concern among authorities is that this could scare small savers away from what is traditionally a key source of funding for Italian lenders, and possibly trigger bank runs.
Italy aims to launch the operation on Monday, the sources said. Prime Minister Matteo Renzi’s government called a cabinet meeting to be held later on Sunday to pass an emergency decree needed to hasten implementation of the plan.
It envisages that the Bank of Italy, as the resolution authority, will set up four “bad banks” containing the impaired assets of each of the failing lenders, and then try to find buyers for what will then be sound banks, the sources said.
The operation will be financed by the National Resolution Fund, which became effective last week. This is paid in to by all the country’s healthy banks, which make annual contributions totaling around 550-500 million euros.
In order to immediately find the 3 billion euros or more needed to save the four troubled banks, the healthy banks will pay three years of contributions in one go, with the help of a bridge loan made by the country’s largest lenders.
One source estimated the sum involved “around 3 billion euros,” while another spoke of “between 3 and 4 billion.”
With some 650 banks, Italy’s financial system is highly fragmented, and the four troubled banks are among the hundreds of small lenders which suffered most during a three-year recession between 2012-14.
Italian banks are still struggling with a mountain of soured debt, with non-performing loans rising to 200 billion euros in September from 198 billion the month before.
(additional reporting by Paola Arosio, writing by Gavin Jones- editing by Adrian Croft)
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