Renzi’s short-term fix to the banking challenge in Italy

dbacd017-1709-4c94-8e6b-15e770bbb1fcItaly’s decision to issue guarantees to assist banks in selling their portfolios of bad loans shows the political limits of bail-in, a regulatory tool intended to transfer the risks of banking from taxpayers to the creditors and shareholders of banks, argues the FT’s editorial.

“Italy’s financial system produces too many bankers and not enough credit, Matteo Renzi has long argued. The deal the Italian prime minister has reached this week with the European Commission, over government guarantees to assist banks in selling their portfolios of bad loans, while far from perfect, could eventually help to address both problems. However, even if this helps to calm markets and defuse acombustible political situation, it will be no substitute for broader reforms to a fragmented and inefficient sector.”

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