• Renzi Cabinet may approve new measures as early as Monday
  • Government `welcomes consolidation within the banking sector'

The Italian government’s efforts to revive the country’s banking industry with new legislation and by backing the creation of a bank rescue fund, will help make its lenders more competitive, Fabrizio Pagani, head of the Finance Minister’s office, said.

“The government has acted to ensure a more modern banking industry” through various means including fiscal and judicial measures, said Pagani in an interview in his office in Rome on Friday. “It has worked to improve banks’ governance through the cooperative banks’ reform, and by limiting stakes held by banking foundations with the aim of reducing the competitive gap with other countries.”

In a further effort, Prime Minister Matteo Renzi may call a cabinet meeting as early as Monday to approve new rules aimed at speeding up bankruptcy procedures. The measures are part of his administration’s efforts to ease a debt burden at Italian banks that has restrained lending and hampered the country’s recovery from recession. Last week, the government backed the creation of a 5 billion-euro ($5.7 billion) bank rescue fund, that was named Atlante, to help bank capital increases and sales of soured debt.

“The Atlante fund is an important initiative because it shows that when faced with a problem, Italian financial institutions can respond by joining forces and giving a common and systemic response,” Pagani said. “It’s a private initiative that the government only helped facilitate. The fund will act as a backstop facility for bank recapitalizations and as a catalyst for bad loan sales improving valuations and attracting new investors.”

Atlante, will be financed by banks, insurers and institutional investors including state-backed Cassa Depositi e Prestiti SpA. This is the government’s second attempt after an earlier plan to create a bad bank with public funds met with resistance from the European Union.

Last effort

Italy’s measures to speed-up bankruptcy procedures represent the last step of a year-long government push to revive the country’s banking system, which has fallen behind its European peers. Last year, the Renzi administration set limits for stakes held by banking foundations in lenders and forced the country’s 10 largest cooperative banks to become joint-stock companies to improve governance and spur mergers.

“The government welcomes consolidation within the banking sector,” Pagani said.

Italian lenders rose in Milan trading on Friday with UniCredit SpA shares up 1 percent and Intesa Sanpaolo gaining 0.5 percent. That pared losses this year to about 31 percent for UniCredit and 18 percent for Intesa. Italian lenders have been among the worst performers on the Bloomberg Europe Banks and Financial Services Index this year.

In the meantime, Italy’s efforts have caught the attention of other countries with similar problems. Portugal’s Finance Minister Mario Centeno said Saturday he was looking at Atlante to see if it could be a model for reducing the burden of distressed debt on his country’s financial system, supporting Italian Finance Minister Pier Carlo Padoan’s view that the private-fund approach is “highly exportable.”

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