An Italian government plan to compensate some retail bondholders who lost money after the restructuring of four small banks may set a precedent for how the country handles future banking crises. Moreover, it underscores the diverging priorities of the European Union and Italian decision-makers when it comes to the country’s banking system.
Italy restructured four small banks in late November, implementing a 3.6 billion euro ($4 billion) plan that imposed losses on 130,000 shareholders and 10,500 junior bondholders. Italy’s small banks have long been struggling, but the government chose to act before stricter European Union rules regarding so-called “bail-ins” come into effect in January. The primary aim of a bail-in is to allow European governments to stabilize a failing bank so that its essential services can continue, without the need for a bailout by public funds. The European Union introduced these rules in 2013, with the deadline of 2016 for implementation, in order to