Two of Italy’s banks are set to be wound down after months of clashes between Brussels and Rome over their fate, leaving the eurozone’s third-largest economy facing another test to the stability of its financial system.
Veneto Banca and Banca Popolare di Vicenza, two mid-sized lenders based in the country’s prosperous industrial north-east, will be wound down by the Italian authorities after the European Central Bank confirmed on Friday evening that the two lenders were “failing or likely to fail”.
Eurozone authorities said the two banks would be wound down through normal bankruptcy proceedings rather than via special rules the EU has put in place to deal with bank crises.
The ECB on Friday said the two banks had “repeatedly breached supervisory capital requirements” It had “given the banks time to present capital plans, but the banks had been unable to offer credible solutions going forward”.
The European Commission said Italian authorities must now “determine the way forward for the two banks in line with Italian insolvency law”.
Brussels is in “constructive discussions” with Rome on the next steps “and good progress is being made to find a solution very soon”, the commission said, adding that the banks’ depositors “remain fully protected in line with EU rules”.
The announcement follows months of speculation over the fate of the banks, amid wrangling between Brussels and Rome over how to deal with the struggling lenders without falling foul of EU limits on state aid. Those limits require some capital to come from private sources before a government bailout can be undertaken.
Italy’s finance ministry and other lenders in the country had held talks in recent weeks to cover the banks’ incurred losses of €1.2bn. The talks were driven by fears that failure would have a knock-on effect on the stability of the Italian financial system, which is plagued by large amounts of non-performing loans.
Intesa Sanpaolo — one of Italy’s largest banks, which is also considered among its healthiest — said it would approve a deal to buy the “good” assets of its troubled smaller rivals on the condition it had no impact on its core capital ratio or dividend policy.