The Italian government are preparing a 20 billion euro bailout for struggling Monte dei Paschi di Siena, as time runs out to secure funds from the private sector.
New prime minister Paolo Gentiloni called a cabinet meeting on Monday night, just hours after the bank launched its final attempt to raise 5 billion euros from private investors. The government are reportedly preparing to request the funds from parliament, with just 10 days left for the bank to secure a bailout.
In a statement the government said “[It] could be necessary to adopt measures with the aim of protecting savers if there were risks in the financial sector.”
The bank are desperately trying to find private investors to bail it out as under EU bailout rules, the bank’s stakeholders would bear the brunt of the losses. However in Italy bank stakeholders are traditionally household investors, meaning the average Italian – and the economy – would suffer.
The bank’s shares fell 8.5 percent on Monday after launching its last-ditch share offering to institutional and retail investors.
The rescue efforts take place against a difficult political backdrop, after Prime Minister Matteo Renzi resigned last Sunday after losing a referendum on constitutional reform. He was recently replaced by the Foreign Minister Paolo Gentiloni, an ally of Renzi’s from the same Democratic Party.
Monte dei Paschi di Siena is just one part of a network of problems in the Italian banking system. Italian banks carry around 360 billion euros worth of non-performing loans, amounting to an astonishing 18 percent of GDP which Italy has been repeatedly asked by the EU to take steps to reduce. After several previous attempts, the banks are having trouble recruiting investors to bail them out again.