Draghi Says Some Italian Banks Must ‘Quickly Strengthen’ Capital

ECB Council Member Mario Draghi
European Central Bank council member Mario Draghi, seen here, told reporters in Seoul the recovery is “weak, fragile, uneven, but it’s there.” Photographer: SeongJoon Cho/Bloomberg

The global financial crisis had a limited effect on Italian banks, though some lenders must “quickly strengthen” their finances, Bank of Italy Governor Mario Draghi said.

“Some banks need to work more in order to quickly strengthen their capital base,” he said in Rome at a press conference to present the central bank’s first Financial Stability Report. Lenders must reduce the weight of bad loans on their books and be ready “to comply with new capital requirements” of Basel II, he said.

The biggest risk to Italian banks stems from the slow pace of economic growth and the report called on the government to continue to cut its budget deficit to foster growth.

“The crisis has had only an indirect effect on Italian banks, which are protected by their sound business model -- focused on lending to households and firms -- and by a prudent regulatory framework and supervisory model,” the report said. “The risks to banks stem mainly from the weaknesses of the Italian economy, in particular its low rate of growth.”

The risk premium that investors demand to hold Italian 10-year debt over German bunds rose to a euro-era high on Nov. 30 as investors shunned the bonds of the euro-region’s high-deficit nations. The government has pledged to bring its deficit back within the euro region’s limit of 3 percent of gross domestic product in 2012, even as slow economic growth weighs on revenue.

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