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How Italy's Bank Plan Leaves Bondholders Confused: QuickTake Q&A

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Italy Commits Up to $19B for Veneto Banks

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Italy’s plan to plow state funds into banks is bringing an end to a drawn-out affair to decide the fate of two struggling lenders based near Venice, in one of the country’s wealthiest regions. It’s also raising questions for bondholders. European Union officials say the deal complies with guidelines to prevent a repeat of the taxpayer bailouts during the 2008 financial crisis. But when that rulebook will force senior bondholders to take a hit is proving difficult to predict.

No. The European Commission blessed Italy’s plan to plow as much as 17 billion euros ($19 billion) into the cleanup of Banca Popolare di Vicenza SpA and Veneto Banca SpA. The deal has tapped what some analysts are calling a “loophole” in the bloc’s resolution framework and could effectively leave the government on the hook for only the bad parts of the banks. Bloomberg View columnist Ferdinando Giugliano called the move a “dagger in the heart” of the dream for a euro zone banking union, which was meant to put tough strictures in place against bail-outs.