IMF urges action on Italian bank bail-in plan

The International Monetary Fund (IMF) has called for action over concerns relating to the bail-in of retail investors in Italy, noting “very high” amounts of non-performing loans and slow judicial processes were straining bank balance sheets.

Financial industry reforms “are critical to entrench financial stability and support the recovery,” the IMF said in a statement following its regular review of the Italian economy.

The Washington-based fund said non-performing loans appeared to be stabilising at around 18% of total loans.

The IMF said “concerns related to the bail-in of retail investors should be dealt with appropriately.”

Talks between Italy and the European Commission to recapitalise Banca Monte dei Paschi di Siena and other banks are stuck on whether creditors should face losses if taxpayer funds are used.

Rules that took full effect this year require bondholders and shareholders to absorb losses in failing lenders in the event of a rescue, a process dubbed a “bail-in.”

Italy favours a precautionary recapitalisation under the EU’s bank-resolution rules, which allow governments to bolster lenders when capital gaps emerge in stress tests, according to sources.

“After what happened with the departure of the UK, in my view it’s fundamental there should be common sense in Europe,” Italian Prime Minister Matteo Renzi said yesterday.

He called on banks to “return to lending to artisans and small businesses” while there should be “rules that are a little more logical, a little clearer, a little more humane.”

The IMF urged measures including more intensive use of out-of-court debt restructuring mechanisms, strengthened supervision, and a systematic assessment of asset quality for banks not already subject to comprehensive ECB assessment.