The European Central Bank’s (ECB) decision to take temporary control of Italy’s troubled bank Banca Carige means the government doesn’t have to consider state aid yet.
Thanks to ECB’s intervention, Italy’s populist government – an increasingly uneasy coalition of the anti-establishment 5Star Movement and the far-right League, which put banks at the top of its list of enemies — doesn’t have to find a solution to the bank’s financial problems, avoiding (for now) the use of state aid, which would have enraged many of the coalition partners’ voters.
In the root of ECB’s decision, was the risk that the failure of Carige to raise needed capital of up to €400 million could reverberate across the entire Italian banking system, possibly sparking a systemic crisis. That’s a risk the seven-month-old government wouldn’t be able to afford, as it remains torn between ambitious spending plans and modest growth forecasts for this year.
«If there was a risk of contagion from Banca Carige, that has been averted for now,» said an official close to the European banking supervisory authorities, who declined to be named. «The ECB supervision grants continuity and gives more time to the bank to find a partner and pursue its turnaround plan.»
The ECB appointed a six-person team to manage Carige, Italy’s 10th-largest bank, after most of its board of directors resigned following the collapse of efforts to raise fresh capital. It was the first time the ECB had made such a move since it acquired expanded powers in 2014 to supervise European lenders.
Italian banks and their balance sheets, burdened by Europe’s biggest pile of bad loans, have been a constant source of concern for both the ECB and the Bank of Italy.
We must note that the two new ruling parties have been among the staunchest critics of Italian banks’ costly rescue plans, and reimbursing savers hit by the crisis was among their main electoral promises. Now, faced with their first banking trouble, they have been surprisingly tight-lipped.
Original Story:EPO/ AICEP
Photo: Banca Carige
Edition: Prime Yield