Markets across Europe cheered as Italy’s €17bn (£15bn) bail-out of two Italian banks was approved – but it raised questions over rules designed to end taxpayer-funded rescues.
Shares in the sector rose while Italian and other Eurozone bond yields fell – meaning lower borrowing costs for governments – as the package eased some of the fears over toxic loans choking the country’s banking system.
The rescue for customers and investors in the failing Veneto Banca and Banca Popolare di Vicenza produced a sigh of relief for other banks wary of having to shoulder the burden of their collapse.
But it was little comfort for staff of the failing lenders as Intesa Sanpaolo, the bank which is picking up viable parts of the lenders for a token €1, said it would close 600 branches and lay off 3,900 staff.
The rescue over the weekend saw the Italian government pump €5bn into Intesa to help shore up its finances and offer a further €12bn in guarantees to shield it from any unexpected loss.
It was quickly approved by the European Commission, despite regulations preventing state bail-outs of banks – but not without criticism.
Markus Ferber, a German Christian Democrat MEP, said: “With this decision, the Commission is leading the banking union to its deathbed.
“The promise that future taxpayers will no longer be held liable for ailing banks is gone once and for all.”
The latest deal comes after Rome was allowed by European authorities to bail out the country’s fourth biggest bank, Monte dei Paschi di Siena (MPS), for up to €6.6bn.
It sidesteps a potential wind-down under tougher EU rules which would have seen the rest of the Italian banking sector facing the €12.5bn cost of guaranteeing deposits below €100,000.
The latest rescue plus that of MPS take €45bn in bad loans off the Italian banking sector’s balance sheet, but it remains saddled with some €300bn of debt that has gone sour.
Italy’s MIB stock index was up 1.4% but lost some of its spark later in the session. Intesa, which is effectively being allowed to cherry pick the best parts of the failing lenders, was 4.2% up by the close.
Markets in the UK, Germany and France were also ahead.
In London, Royal Bank of Scotland, Barclays and HSBC were among the main risers on the FTSE 100 Index.