Italy's economic minister Pier Carlo Padoan defends banking system

Italy’s economy minister, Pier Carlo Padoan, said yesterday that his country’s financial system remained solid as the government faced a mounting furore over the rescue of four banks that wiped out the savings of thousands of retail investors.

Italy saved Banca Marche, Banca Etruria, CariChieti, and CariFe at the end of November, drawing €3.6bn from a crisis fund financed by the country’s healthy lenders.

Tougher EU rules on bank rescues, aimed at shielding taxpayers, meant shareholders and holders of junior debt were hit, unleashing protests against the government.

“The government is doing everything in its powers to put the banks on the right path and to reinforce the banking system,” Padoan said in a radio interview, adding that “the institutions and the system remain solid”.

The Italian government has “full confidence” in the Bank of Italy and market regulator Consob, he said.

Italian authorities came under fire after it emerged that many ordinary Italians had been sold risky subordinated bonds which, in case of bankruptcy, only get repaid after ordinary creditors have been reimbursed in full.

Around 10,000 clients of the four banks held some €329m in such junior bonds, the treasury said on Monday.

Padoan said he did not know if the government would be weakened by the affair, which has hit bank bonds and shares.

Retail investors have rushed to sell junior bank bonds after one pensioner who lost his savings committed suicide.

Padoan gave his support to the minister for reforms, Maria Elena Boschi, one of Italian prime minister Matteo Renzi’s closest allies, who faces a no-confidence motion in parliament tabled by the anti- establishment 5-Star Movement, over an alleged conflict of interests.

Boschi’s father was vice-president of Banca Etruria until the bank was put under special administration by the Bank of Italy this year, and Boschi was a shareholder.

“I am sure that Boschi will come out of this extremely well,” Padoan said.

However, pressure on Boschi and the government rose on Monday, with Renato Brunetta, head of former prime minister Silvio Berlusconi’s Forza Italia faction in the lower house of parliament, announcing a no-confidence motion against the entire government over the bank rescue.

Renzi commands a majority in both houses, though he has a narrower margin in the senate, where critics from his own party sometimes vote against him.