An emergency meeting on Sunday resulted in a final decision being taken on two ailing banking institutions, Veneto Banca and Banca Popolare di Vicenza. As a result of the discussions, it has been decided that both these banks will be wound up. The Italian government will be footing the bill of about €17 billion to complete the wind- up.
Branches will remain open
The branches of both the banks will remain open and it is proposed that they will be divided into good and bad banks. Both the entities are to be liquidated after the good assets are taken over by Intesa Sanpaolo, which also happens to be Italy's largest retail banking entity. In exchange, the Intesa Sanpaolo gets € 5 billion from the government.
State guarantees to be given
Once the banks have been liquidated, the bad loans on the books will become the state's responsibility. The restructuring of the two entities will also be financially backed by the state as part of its efforts to head off bank run that could rock the economy. The total cost that may be paid for the entire process could head up to € 17 billion because the state also has to offer guarantees to the tune of some €12 billion to cover the potential losses. Meanwhile, the banks are expected to function as always for now with all branches remaining open for business as usual.
Cash will flow from the fund created for lenders
The funds for the restructuring and the other costs pertaining to the winding up will not be forced upon tax- payers. They will come from a fund that was created last year to support lenders who are unable to manage their financial commitments. The fund had accumulated worth of € 20 billion which will be adequate to cover the cost of this entire restricting. This means that the country's public borrowing will not be adversely impacted in any way.
However, the question of whether the beleaguered banks will continue to retain all of their employees looms large. It is not yet clear if lay- offs will be imminent during the restructuring but it does seem likely. It should not come as a shock to the employees though because efforts have been on for months to pull the banks back from the brink of liquidation and this is common knowledge.