Italy’s $21 Billion Bank Rescue Fund Is Sufficient, Visco Says

  • Government has ‘more than enough room’ for bank issues: Visco
  • Steps last year let Italy ‘deal constructively’ with crises

Italy’s 20 billion-euro ($21.4 billion) government rescue fund is sufficient to recapitalize the country’s troubled banks, and about a third of money will be used for Banca Monte dei Paschi di Siena SpA, Bank of Italy Governor Ignazio Visco said.

"This measure is an important one for Italy as it emerges from the crisis that buffeted its economy and banking sector,” Visco, a member of the European Central Bank Governing Council, said on Saturday in a speech at the annual Assiom-Forex conference in Modena, near Bologna. “There is more than enough room to address the recapitalization needs of any other Italian banks that meet the conditions laid down in the decree, in the first place those relating to the results of a stress test.”

Ignazio Visco

Photographer: Andrew Harrer/Bloomberg

Prime Minister Paolo Gentiloni’s government earmarked the fund last year to help recapitalize Monte Paschi and Italy’s other struggling lenders in an effort to revive a banking industry burdened with about 360 billion euros of troubled loans and to boost credit. In a Paschi bailout that is slated to cost 8.8 billion euros, Italy is using a provision that allows state support for solvent banks in exceptional circumstances.

"The measures taken in Italy in 2016 have made it possible to deal constructively with other
crisis situations, with the contribution of both the public sector, including as a facilitator, and the private sector," Visco said. Banks still need to reduce the amount of bad loans, even if the majority of lenders don’t need to “sell them immediately,” according to the governor.

The nation’s banking system is resilient, he said, and weaker banks should get rid of their bad loans and strengthen capital by raising fresh money on the market. The governor also urged medium-sized banks to merge “to achieve cost savings and increase operational efficiency.”

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