Italy hits banks with windfall tax

A surprise 40% windfall tax has been levied on Italian bank profits to help households and small businesses struggling with the cost of living, the government has announced.

The shock move, which still requires parliamentary approval, sent Italian stocks into a tailspin on Tuesday, with shares in UniCredit, FinecoBank, Intesa Sanpaolo and Banco BPM all down between 6% and 10% by the afternoon session in Milan.

The one-off tax, which was unveiled following a cabinet meeting of Prime Minister Giorgia Meloni's ministers late Monday evening, will apply to banks’ net interest margin – the income that banks make on the difference between their lending and deposit rates.

The move is expected to generate around €2bn, and follows recent criticism of the banking sector by the Meloni government for not passing on interest-rate increases to savers.

Speaking at a news conference in Rome, Deputy Prime Minister Matteo Salvini said: "One has only to look at banks' first-half profits to realise that we are not talking about a few millions, but of billions.”

Since July 2022, the European Central Bank has lifted its main deposit interest rate from -0.5% to 3.75% in an effort to fight inflation. But bank profits have jumped as lenders have been able to hike borrowing costs faster than the rates they have given depositors.

As a result, many of the biggest banks have reported huge increases in profits over the first half of the year, and have lifted their guidance for full-year earnings. Intesa Sanpaolo, for example, announced in July that it was on track to generate €13.5bn from its net interest income alone this year.

Parliament now has 60 days to approve the levy.