Italian finance minister rejects need for banks bail-in
Pier Carlo Padoan, the Italian finance minister, has denied that Italy’s banks are suffering from systemic problems and rejected a “bail-in” of private investors as he sought to reassure global markets over the state of Italy’s financial institutions.
“We are going in the right direction, there is no risk in terms of systemic stability,” Mr Padoan said at the end of the G20 meeting of finance ministers and central bank chiefs in the Chinese city of Chengdu on Sunday, adding that there were a few “contained” critical cases.
The Italian reassurances came as the G20 pledged to use “all policy tools” to support growth, saying they were ready to respond to any negative fallout from Brexit amid uncertainty over protectionism and Britain’s future relations with the EU.
“The outcome of the referendum on the UK’s membership of the EU adds to the uncertainty in the global economy,” read a joint communiqué released by China’s finance ministry. “Members of the G20 are well positioned to proactively address the potential economic and financial consequences stemming from the UK referendum. In the future, we hope to see the UK as a close partner of the EU.”
Global risks from Brexit dominated the two-day meeting. Philip Hammond, the UK’s newly appointed chancellor of the exchequer, said negotiating partners had expressed optimism about bilateral relations. He said: “Among the non-EU G20 colleagues, they’ve all spotted the significant opportunities that there are for greater trade and the potential to do direct bilateral trade deals in the not too distant future with the UK.”
Mr Padoan’s comments come ahead of a key week for Italian banks, which will be closely watched when the results of European-wide stress tests are published on Friday, possibly leading one or more of them to rush to raise new capital.
Jack Lew, the US Treasury secretary, met Mr Padoan on the sidelines of the G20, saying that while Europe’s banking system was stronger due to reforms put in place in recent years, more work remained, and banks should continue to clean up their balance sheets.
The Italian banks have been disproportionately hit in the market turmoil following last month’s Brexit vote because they are saddled with non-performing loans dating back to the recession.
Results of the stress tests raise the prospect of a public injection of cash by the Italian government, which would probably involve a hit to private investors in the banks under tough EU state aid rules. But Italy has also been trying to arrange a private-sector rescue to avoid such a scenario and Mr Padoan ruled out a so-called bail-in “for the moment”.
The G20’s call to use “all policy tools” echoes similar language at a meeting in Shanghai in February and contained no concrete commitments on fiscal stimulus. Policymakers broadly agree that scope for further monetary policy stimulus is limited but faultlines remain over more aggressive moves.
In addition to Brexit, full-throated protectionism expressed by Donald Trump, US Republican presidential nominee, is also rattling global confidence.
The G20 communiqué cited “geopolitical conflicts, terrorism, and refugees” as further sources of economic uncertainty.
Mr Lew and his Chinese counterpart Lou Jiwei agreed to work together to cut global excess capacity in sectors including steel and aluminium. They will also work on new global guidelines on government provision of export credit, amid complaints that Chinese companies unfairly benefit from government support. Mr Lew expressed support for multilateral negotiations on cutting steel capacity.