The new Italian prime minister, Paolo Gentiloni, is to ask parliament to approve a loan of €20 billion to underwrite the stability of the country’s weak banks.
First in line could be Monte dei Paschi di Siena, the third largest Italian lender and the world’s oldest bank. It has been trying to raise €5 billion in new private funding to prop itself up and avert government intervention.
The bank has been much in the news as it is pinpointed at the heart of Italy’s banking crisis. Monte dei Paschi was judged recently to be the weakest of the EU’s major banks.
Unless it raises capital and disposes of its billions-high mountain of bad debts by the end of December, it could be wound down by the European Central Bank. Under EU regulations, investors are required to bear losses.
This factor is putting great pressure on the week-old new administration under Gentiloni. A state bailout could prevent the bank’s closure.
"It's a precautionary measure. We believe it is our duty to take this measure to protect savings. I hope all the political movements in parliament share this responsibility," Gentiloni told reporters after a cabinet meeting.
Goldman Sachs estimates that Italy's most fragile banks need €38bn to be adequately capitalised.
The Five Star Movement, the opposition party led by comedian Beppe Grillo, opposes the €20 billion, calling for a full nationalisation of struggling banks.
A backlash against a taxpayer-funded bailout of Italy’s weakest lenders has begun with Codacons, a consumer lobby group, estimating that a €20 billion refinancing of Italy’s failing lenders will cost each Italian family €833.
Given there is around €260 billion in nonperforming loans, €20 billion is not thought to be adequate by anyone outside Italy.
