Bank of Italy Governor Ignazio Visco called Saturday for an amendment to recently-introduced European Union rules on bank bailouts whose implementation has created problems and market tensions in his home country.
The legislation, adopted in the wake of costly public bank rescues following the 2008 global financial crash, establishes "bail-in" principles for banks, meaning that shareholders and investors should pay when lenders run into trouble, rather than taxpayers.
But the "delicate changeover" from state-funded bailouts to private bail-ins has been too sudden, Visco argued in a speech in the northern city of Turin.
"A gradual, less abrupt transition would have been preferable. This would have enabled investors to be fully acquainted with the new rules and to adapt their choices to the new regulatory environment," he said.
The issue came to the fore in Italy in November, when four small banks were rescued applying the new rules. Public opinion was shaken because more than 10,000 ordinary people, who in some cases were tricked into risky investments, lost savings.
Since then, public confidence in the Italian banking system has taken a hit, and the value of banks on the stock market has fallen sharply: stocks in the most troubled Italian lender, Banca Monte dei Paschi di Siena, went down 47 per cent in the last month.
Visco said a more gradual transition towards bail-in rules would be "more in keeping" with international standards, and said "the opportunity must now be seized" to correct EU legislation, using a clause that "provides for its review ... no later than June 2018."
The main problem for the Italian banks is being saddled with too many loans that are unlikely to be repaid, a legacy of a long recession. Closing months-long negotiations, the EU approved this week a Rome government scheme that should help banks get rid of bad credit.
Visco hailed the deal as "an important step [...] ending the uncertainty of the past few months," but added, "It must be clear that no reasonably conceivable measure can cancel at a stroke the stock of bad debt."
But the governor also insisted that Italian banks were sufficiently covered against losses and dismissed stock-market jitters. "Tensions of this magnitude are not justified by the underlying conditions of Italian banks," he said.
The stock of bad debts should slowly decrease as the economy recovers, Visco predicted, recalling that Italy's economy was set to grow by 1.5 per cent in 2016 and 2017, up from 0.8 per cent last year, and three previous years of recession.