Brexit a further blow to Italian banks

The domino effect of the UK Brexit vote could topple European countries already under a lot of pressure.

Italian banks had already been struggling, but the market slump post Brexit has dumped on them even more.

Bloomberg: Italy Explores Bank-Rescue Options With EU on Brexit Losses

The Italian government, which failed to gain European Union backing for a bad bank just months ago, is sounding out regulators on ways to shore up its banks after their shares were hammered following the U.K.’s vote to secede from the bloc.

The government in Rome is considering measures that may inject as much as 40 billion euros ($44 billion) into banks, possibly by providing capital or pledging guarantees, said a person with knowledge of the talks. The amount is still under discussion and no final decision has been made, the person said.

And EU rules limit the Italian Government’s options for propping them up.

Italy’s government earlier this year was forced to water down plans for a publicly funded bad bank on EU resistance, instead creating a smaller fund backed by lenders and investors to help stabilize the financial system and speed up consolidation.

Use of public money to prop up banks would require European Commission approval under EU state-aid rules.

Italy may evoke exceptional circumstances of systemic stress caused by Brexit to allow all European governments to help banks with public funds, la Repubblica reported without citing anyone. Under the plan, Europe would close the window for waiving state-aid rules after six months, the newspaper said.

EU state-aid rules normally require shareholders and junior creditors to take losses before public money is put into a bank.

One exception foreseen is for aid provided in “exceptional circumstances.” This requires a unanimous decision of EU member states.

Another provision allows for an exception from the bail-in requirement when enforcing it would “endanger financial stability.”

Britain is still a member state of the EU so would presumably still have a say, if anything was decided before they left.

Other countries may be more of a problem.

Sven Giegold, a German member of the European Parliament, said Italy was “quite brazen” to try to use the “Brexit confusion” to push through state aid for banks.

There is a real possibility that the referendum in Britain could precipitate the collapse of Italian banks (which slumped 20% in value since the Brexit vote)  and the country’s already shaky economy.

However the post-Brexit slump may be over. For now. Perhaps.

Stuff: European Union leaders tell Britain to exit swiftly, market rout halts

Financial markets recovered slightly after the result of Thursday’s (Friday NZT) referendum wiped a record US$3 trillion off global shares and sterling fell to its lowest level in 31 years against the dollar, but trading was volatile and policymakers said they would take all necessary measures to protect their economies.

 

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1 Comment

  1. Gezza

     /  29th June 2016

    Never been so well-informed about something as important as this development as I have been reading stuff here last week or so. I’m getting most of my information about it from here.

    Big ups to you & Missy, PG. 😎

    Reply

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