International

Leadership
Council
The Italian Banking Crisis:
All roads lead to Rome

Context

Bankruptcy proceedings take a long time (7~8 years in

Italy, 2 years in other EU nations)
Longer time to evaluate collateral
Longer time to evaluate liquidate collateral

Italian Banks made some bad loans (360 billion EUR, or 405
billion USD)
Poor credit worthiness testing
Poor oversight of lenders to debtors
Still reeling from 2008 crash (especially South)

As a result

A run on the banks? Much like Greece?

Sharp decline in Italian Bank stock prices

Smaller banks such as Veneto Banca and Banco

Popolare di Vicenza cannot raise capital for cash
call
Cash call Purchased an asset on a margin, but its
price falls. Then must amass capital to pay back
the rest of that assets price
ECB told them to raise 1 and 1.5 billion EUR
respectively for the cash call
But this doesnt even seem possible

Non Performing Loans make up 20% of Italys

GDP
Non Performing Loan loan payment has not been
made for 90 days
Italy is the 3rd largest economy in EU

What is being done? Altante

Speed up bankruptcy proceedings

Easier to assess the scale and severity of debt issue
Help distressed small banks

Strong-armed larger, better performing banks to muster

the required capital
5 billion EUR currently amassed
Most immediate priority is to deal with the cash call
Gradually buy bad loans from small vulnerable banks (NPLs
valued at 40% of book value but investors are only willing to
go as high as 20%)

Will it work? Does this show any more

dangers?

Maybe even illegal?

An Italian government bank (CDP) is involved in the capital raising process, maybe
breaching ECB regulations regarding government subsidies

The capital has been amassed, but its usage as not been ascertained
internal conflict as to which banks should be helped first (this is a private sector
solution, not a government bailout)

Speeding up of bankruptcy proceedings is difficult since Italys legal system is

notorious sluggish
Too little too late?

Too loose credit qualifications? Many regional banks in France also share this
problem

Once lending practices are tightened, already low economic growth of 0.7% will
surely be adversely affected

All roads will lead at least eventually to Rome, question is which is less painful
for the economy and its participants?

References

http://www.economist.com/news/finance-and-economics/21696
996-italys-latest-attempt-stabilise-its-banking-system-he
avyload

http://www.wsj.com/articles/italian-banks-why-you-cant-jus
t-throw-money-at-this-problem1460473467

http://www.zerohedge.com/news/2015-07-15/italy-%E2%80%9
3-non-performing-loans-hit-new-recordhigh