ROME, Nov 13 (Reuters) - Italy approved new rules on propping up failed banks on Friday, implementing a European Union directive aimed at protecting taxpayers from the risk of having to bail out troubled lenders.
The so-called Bank Recovery and Resolution Directive (BRRD) imposes losses incurred in a bank rescue on shareholders and creditors, in a process known as “bail-in”, before any taxpayers’ money can be tapped.
The European Union drew up the new rules in an effort to prevent a repeat of the 2008 financial crisis, when a number of governments had to salvage failing banks at huge expense.
EU states are adapting national laws to bring themselves into line with the norms.
Following up on two decrees approved in July by Italy’s parliament, Prime Minister Matteo Renzi’s cabinet gave its final approval to the measures on Friday, said government undersecretary Claudio De Vincenti.
The bail-in rules, the key plank of the directive, will be fully in place starting in January. But other ‘burden sharing’ measures inflicting losses on shares and subordinated bonds are immediately effective now that the law has been approved.
Italy is rushing to rescue four small lenders at risk of having to be wound down before the bail-in rules kick in.
A scheme to make use of a deposit guarantee fund financed by other lenders to save Banca Marche, Banca Popolare dell‘Etruria, Cassa di Risparmio di Ferrara and Cassa di Risparmio della Provincia di Chieti has run into difficulties in Brussels due to EU rules on state aid.
The new Italian law gives priority to claims arising from deposits over other senior unsecured debt.
Under previous legislation, depositors and bondholders had the same rank and losses were shared equally. (Reporting by Antonella Cinelli and Stefano Bernabei; Writing by Isla Binnie; Editing by Elaine Hardcastle)