Italy Granted "Extraordinary " €150BN Bank Bailout Program To Prevent "Panic, Run On Deposits"
Italy Granted "Extraordinary " €150BN Bank Bailout Program To Prevent "Panic, Run On Deposits"
As we noted today, the rumors of an Italian bank bailout, which started on Monday morning, and were promptly shot down by Merkel the next day, got louder after a Reuters report that the Italian government is considering more creative ways to inject liquidity into Italy's banks. However that was just an appetizer to a main course, which came later today when as the WSJ reported citing a spokeswoman for the European Union’s executive arm that the "European Commission has authorized Italy to use government guarantees to create a precautionary liquidity support program for their banks."
How did this happen so quietly under the table and without Merkel's blessing? WSJ says that the program was approved under the bloc’s “extraordinary crisis rules for state aid."
And here we thought that Italy's banks are actually doing so very well. Oh wait, no we didn't.
As the WSJ notes, the proposed "crisis" plan is the "other leg of an intervention plan considered by the government" namely, the direct capital injection into Italian banks that would add up to €40 billion in capital to the banking sector", the one we profiled previously. It is also the plan that Merkel supposedly shut down before it got off the ground. However, Europe had a Plan B up its sleeve.
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To be sure, Italy's market has indeed been turbulent: Italian banks have lost more than half of their market capitalization since the beginning of the year, as investors fret about the lenders’ huge exposure to bad loans. That compares to an average decline of less than one third for European lenders. Some Italian banks have seen their shares drop by some 75%.
But what is most stunning is the WSJ's conclusion of what the plan is supposed to prevent - it is not to halt the stock price collapse, it is to prevent a bank run:
A person familiar with the Italian government plans said the cabinet of Prime Minister Matteo Renzi hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits and affect banks’ liquidity.
Needless to say, for Italy's Prime Minister to be contemplating how to avoid "investor panic" and prevent a "run on deposits", then Italian banks must truly be on the verge of collapse.
Finally, for those curious about timing and how soon until it all unravels, we quote the European Commission spokesman who said that “there is no expectation that the need to use this scheme should arise.”
What this statement really means, and whether a preemptive plan to bailout Italy's insolvent banks will "boost confidence", we leave up to readers decide.
More bailouts and crises of South-European countries in the EU Superstate.
Italy Granted "Extraordinary " €150BN Bank Bailout Program To Prevent "Panic, Run On Deposits"
As we noted today, the rumors of an Italian bank bailout, which started on Monday morning, and were promptly shot down by Merkel the next day, got louder after a Reuters report that the Italian government is considering more creative ways to inject liquidity into Italy's banks. However that was just an appetizer to a main course, which came later today when as the WSJ reported citing a spokeswoman for the European Union’s executive arm that the "European Commission has authorized Italy to use government guarantees to create a precautionary liquidity support program for their banks."
How did this happen so quietly under the table and without Merkel's blessing? WSJ says that the program was approved under the bloc’s “extraordinary crisis rules for state aid."
And here we thought that Italy's banks are actually doing so very well. Oh wait, no we didn't.
As the WSJ notes, the proposed "crisis" plan is the "other leg of an intervention plan considered by the government" namely, the direct capital injection into Italian banks that would add up to €40 billion in capital to the banking sector", the one we profiled previously. It is also the plan that Merkel supposedly shut down before it got off the ground. However, Europe had a Plan B up its sleeve.
..........
To be sure, Italy's market has indeed been turbulent: Italian banks have lost more than half of their market capitalization since the beginning of the year, as investors fret about the lenders’ huge exposure to bad loans. That compares to an average decline of less than one third for European lenders. Some Italian banks have seen their shares drop by some 75%.
But what is most stunning is the WSJ's conclusion of what the plan is supposed to prevent - it is not to halt the stock price collapse, it is to prevent a bank run:
A person familiar with the Italian government plans said the cabinet of Prime Minister Matteo Renzi hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits and affect banks’ liquidity.
Needless to say, for Italy's Prime Minister to be contemplating how to avoid "investor panic" and prevent a "run on deposits", then Italian banks must truly be on the verge of collapse.
Finally, for those curious about timing and how soon until it all unravels, we quote the European Commission spokesman who said that “there is no expectation that the need to use this scheme should arise.”
What this statement really means, and whether a preemptive plan to bailout Italy's insolvent banks will "boost confidence", we leave up to readers decide.
More bailouts and crises of South-European countries in the EU Superstate.
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