Italy Banks’ Bad Debt Guarantee System Ready by End March

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The state guarantee on Italian banks’ bad debts agreed by Prime Minister Matteo Renzi’s government and the European Union may start operating as early as the end of March, a senior Treasury official said.

“We think that operations might be brought to the Treasury within a couple of months,” Alessandro Rivera, the head of the Italian Treasury’s Banking, Finance and Legal Affairs unit said in a telephone interview. The cost of the guarantee for will be about 90 basis points in the first three years, the official said.

Rivera said that Italy will not negotiate further with the EU on the measure’s main terms, ensuring the state aid-free nature of the scheme and allowing banks to offload soured loans after buying the guarantee.

The government is in talks with the European Central Bank for the use of senior asset-backed securities as collateral, the official added.

The measure will probably be introduced through a decree law, giving it immediate effect, he also said.

The government will not set a ceiling for the state guarantee in the decree, Rivera said. He added the bad-debt loan plan, which is “attracting a lot of interest,” will allow lenders to save about 2 percentage points on the cost of issuing the securities relative to the cost of doing so without the guarantee.

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