Europe Bank Crisis Spreads: Italy Calls “Last Resort” Meeting to save banks

efa01eaff4368b269c4a14f272a05fbe_XLAs a last resort to ringfence a massive €360bn pile of non-performing loans of Italian banks, Finance minister Pier Carlo Padoan has called for a meeting of minds in Rome on Monday. Padoan seeks a plan reminiscent of the Sareb bad bank structure in Spain, even though that plan blew up several times. The bad bank will require equity contributions, mostly from Italy’s banks, insurers and asset managers to build up a backstop fund. This approach is necessary because Italy has public debt load that amounts to 132.5 per cent of GDP in gross violation of Eurozone rules. The structure needs a buffer of last resort because Monte dei Paschi di Siena, Italy’s third-largest bank, has €170bn in assets and about €50bn in bad loans. Monte dei Paschi di Siena is regarded as too big to fail, a veritable elephant in the room, trading at zero compared with tangible equity. Lehman Brothers collapsed in 2008 it was trading at about 20 per cent of its tangible equity. Read Article

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