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12/22/16

Italian Economy: Italy moves to rescue its banks

On Wednesday, Italy's two houses of parliament approved a government request to increase the public debt by up to 20 billion euros (20.8 billion dollars) to fund a rescue package for ailing banks. It will likely begin by recapitalizing Monte dei Paschi di Siena.

MPS, founded in 1472 and considered the world's oldest lender, is struggling to complete a 5-billion-euro recapitalization by year's end, as required by the European Central Bank after recent stress tests showed it was grossly undercapitalized in view of a heavy burden of billions of euros in uncollectable debts on its books.

MPS was set to announce on Thursday its failure to find sufficient private investment money to bolster its capital base. In the night before Thursday, MPS announced it had been able to collect less than 2.5 billion euros through debt-equity swaps, and that no major investor had responded to its recapitalization bid, which started Monday and was due to close at 2 pm Thursday.

A resolution in the lower Chamber of Deputies, which was in favour of the government's plan, was approved in a 389-134 vote. There were 8 abstentions. A few minutes later, the Senate also gave its go-ahead in a 221-60 vote, with 3 abstentions.

The 20-billion-euro sum "is sufficient" to solve the problems of an Italian banking sector that "is solid, healthy, but with some well-known critical cases with specific characteristics for each," Minister for the Economy and Finanaces, Pier Carlo Padoan, told the Chamber of Deputies.

The money will fund a "precautionary" safety net, and could be used to inject capital into lenders needing to increase their capital buffers, or to reimburse retail savers caught up in the new European Union 'bail-in' rules. Those rules are meant to ensure that private investors - including retail clients - will bear most of the costs of bank bailouts, rather than taxpayers bearing the cost as was the case in the wake of the banking crises that occurred in the wake of the 2008 financial system meltdown.

Read more: Italy moves to rescue its banks | Business | DW.COM | 21.12.2016

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