By Giuseppe Fonte
ROME Oct 21 A new system of guarantees Italy is
planning to introduce will make it cheaper for banks to
negotiate derivative contracts with the Treasury over government
bonds, potentially increasing their ability to buy Italian debt.
The move is linked to new Basel III international banking
rules that require lenders to hold more capital against their
exposure to derivatives contracts.
The plan comes at a time when Italian banks are expected to
slow down purchases of domestic bonds, making it more important
for the Treasury to find foreign buyers for its debt. Italy is
one of the world's biggest sovereign borrowers and has narrowly
avoided being sucked into the euro zone debt crisis.
Under the new system, outlined in a draft decree linked to
the budget law that parliament must pass by year-end, the
Treasury and the banks will exchange cash sums on a short-term
basis to guarantee their respective derivatives positions, based
on their mark-to-market value.
The sums held as collateral will bear interest at
The measure is necessary due to "new financial regulations,
(in order) to favour easier and cheaper sales of government
bonds, through the reduction of the credit exposure of bank
counterparties," said the draft document, seen by Reuters.
However, as it is a two-way system it will also protect the
Italian state from counterparty risks, it said.
A Treasury official told Reuters the new system would help
Italy issue debt denominated in currencies other than euros.
Italy's 1.7 trillion euros ($2.3 trillion) in government
bonds included $19 billion issued in dollars as of Sept. 30. The
Treasury last launched a dollar bond in September 2010.
"Such issues require hedging against currency risks through
derivative contracts and would be too expensive without the
system of guarantees," the Treasury official said in a note.
The draft bill said the new system was in accordance with
International Monetary Fund recommendations, adding it had been
recently introduced in Britain while Sweden had used it for a
Analysts say Italian banks could be reluctant to increase
holdings of domestic debt, already totalling 397 billion euros,
because the European Central Bank is due to run an in-depth
check of their balance sheets next year before taking over
supervision of the sector from national regulators.
Italian think-tank Prometeia forecasts Italy's public debt
next year will rise by 65 billion euros, hitting 134 percent of
gross domestic product.
"It is difficult to imagine that the (Italian) banking
system could absorb such an amount ... after absorbing around
100 billion euros in the course of 2013, actually it could lower
the stock of government bonds it holds," the think-tank wrote in