Veneto Banca and Banca Popolare di Vicenza, blighted by bad loans and a mis-selling scandal, will open as usual on Monday, says finance minister

This article is more than 3 years old

This article is more than 3 years old

The Italian government is stepping in to wind up two failing lenders and prevent a bank run, at a total cost of up to €17bn (£15bn).

After an emergency cabinet meeting on Sunday, ministers agreed to a decree splitting Veneto Banca and Banca Popolare di Vicenza into ‘good’ and ‘bad’ banks, keeping branches open.

The ‘good’ assets are being acquired by Italy’s biggest retail bank, Intesa Sanpaolo, with the Italian government handing about €5bn to Intesa as part of the deal.

The lenders will then be liquidated, which leaves the state footing the bill for bad loans on both banks’ books, plus restructuring costs.

The Italian government would provide state guarantees worth up to €12bn to cover potential losses at the ‘bad’ bank, Pier Carlo Padoan, the finance minister, told reporters in Rome. That means the total cost could reach €17bn.

Padoan added that both banks would operate normally on Monday. The deal is meant to ward off the threat of a bank run, by reassuring nervous savers and deterring them from withdrawing their funds when branches reopen.

Paolo Gentiloni, Italy’s prime minister, insisted that the decree fully respected EU rules, even though taxpapers are no longer meant to stump the cost to rescue a failing bank.

The funds will come from a €20bn fund created last year to help struggling lenders, so will not affect Italy’s public borrowing, according to the government.



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The deal appears to protect depositors and senior creditors of the two banks. But it is not clear how many jobs will be lost, or how many branches Intesa could decide to close.

On Friday, the European Central Bank ruled that the two lenders, based in the Veneto region of Italy, were “failing, or likely to fail”. That ended months of uncertainty, and failed attempts to raise fresh capital, and forced the Italian government to commence insolvency proceedings and wind them up.

The government had spent months trying to avoid liquidation, by using a mixture of state funds and private investment to recapitalise both lenders. But the plan failed to win support from investors, and the ECB ultimately concluded that time had run out to present “credible solutions” to keep the two lenders operating.

Veneto Banca and Banca Popolare di Vicenza are key players in the industrial heartland, in the north-east of Italy. As well as bad loans, they have also been dragged down by a mis-selling scandal. Shares in the two companies have slumped in value, hurting small shareholders across the region.



Italy’s government has been sparring with the ECB for months, over how to clean up its banking system. It is currently implementing a precautionary recapitalisation of the world’s oldest bank, Monte dei Paschi di Siena.

