MILAN • Italy orchestrated its biggest bank rescue on record, committing as much as €17 billion (S$26.4 billion) to clean up two failed banks in one of its wealthiest regions, a deal that raises questions about the consistency of Europe's bank regulations.
The intervention at Banca Popolare di Vicenza and Veneto Banca includes state support for Intesa Sanpaolo to acquire their good assets for a token amount, Finance Minister Pier Carlo Padoan said on Sunday after an emergency Cabinet meeting in Rome.
Milan-based Intesa can initially tap about €5.2 billion to take on some assets without hurting capital ratios, he said. The European Commission approved the plan.
The agreement bolstered bank stocks across Europe, with Intesa leading gainers, while putting into question the effectiveness of rules meant to ensure private investors share the burden of bank bailouts.
A few weeks ago, Spain's Banco Popular Espanol was wound down without state aid. Italy, which wants to avoid imposing losses on bond holders as many are mom-and-pop investors, is still in talks with the European authorities to save Banca Monte dei Paschi di Siena, the world's oldest bank, through " precautionary recapitalisation".
Mr David Hendler, founder of Viola Risk Advisors, a credit analysis firm in New York state, said that in recent months, "bank intervention (has been) specific to each troubled bank situation on its own conditions, with government and regulatory decisions on how to intervene influenced by multiple major macro factors". He added: For global bank investors, the European banking sector and how to invest in it is very confusing, not uniform, and difficult to predict."
Italian Prime Minister Paolo Gentiloni said intervention was needed in the banking crisis, with depositors and savers were at risk. The northern region they operate in "is one of the most important for our economy, above all, for small and medium-sized businesses".
Mr Padoan said that while an additional €12 billion will be available to cover any further losses, the treasury estimates the fair value of the losses at €400 million, a sum already included in the funds provided to Intesa.