Various banks and other financial institutions struggle financially. This is most apparent in Italy, as another bank needs to be bailed out. The government approved a 900 million Euro injection to rescue Popolare di Bari.
The Italian Banking System
Over the past few years, Europeans have learned how Italy‘s banking infrastructure is not doing too well. Most of the problems came to the surface in 2017. The Italian government decided to bail out two smaller banks, following the liquidation of four smaller popolari banks in late 2015.
Following those 2015 liquidations, Italian officials introduced an unpopular measure a year later. A new 20 billion euro bailout fund was created. All of the money in the fund was borrowed from the ECB and other European countries. That money would be put to good use a lot sooner than originally intended, however.
Monte Dei Paschi Di Siena received an injection in early 2017. By recapitalizing the bank, Italian taxpayers had to cough up a lot of money to do so. Unfortunately for the region, two more banks would face financial problems in 2017. Both Banca Popolare di Vicenza and Veneto Banca were likely to fail. As such, they too needed a financial injection to keep these insolvent banks afloat.
Popolare di Bari Needs Help
One would expect the Italian government to learn from these previous problems. Not entirely unexpected, they have not done so. This week, it became clear that Popolare di Bari would need to be saved. The government held an emergency meeting to approve a rescue fund of up to 900 million euro.
This is not entirely sufficient to keep the institution going. Bank representatives claim they need 1 billion euro urgently, but they will not get the full amount. The bank’s main issues are caused by mounting loan losses, a problem that has become widespread throughout all of Italy in recent years.
This new financial injection is subject to a somewhat complex structure. The 900 million fund will be used to finance Banca del Mozzogiorno-Mediocredito Centrale. That institution will then surface as a way to finance the capital increase for Popolare di Bari.
Over half of the money is used to improve the bank’s financial strength. The rest will serve as a “honeypot” for future problems, should they arise. Given the current financial conditions in Italy, it seems more than fair to assume problems will ensue fairly soon.