Italian government stands ready to aid banks, even against EU rules if necessary

Rome has made plans to inject funds into its ailing banking system should signs of severe systemic distress emerge, the Financial Times reported.

Italian prime minister Matteo Renzi would be willing to contravene European Union rules against state aid, if necessary, according to several officials and bankers familiar with the plans cited by the FT.

Europe´s brand new banking rule book is based on the principle of bailing-in creditors, instead of taxpayers picking up the tab, and is considered critical for the sustainability of the nascent banking union.

The results of stress-tests for the country´s lenders are due this month, on 31 July, piling-on the pressure on bank shares, ahead of the early-October constitutional referendum set to take place in Italy.

“We are willing to do whatever is necessary [to defend the banks], and do not rule out acting unilaterally, although that would only be as a last resort,” one person familiar with the Italian government’s thinking told the FT.

Options being discussed by government officials include increasing the funds available to its state-sponsored privately backed fund called Atlante which has already backstopped two cash raising excercises. Atlante was also expected to launch a fund to buy non-performing loans from lenders within days.