Banking Done By Grown Ups, Not Brown

Italian banks will need a capital injection of some €21bn to bring their financial strength into line with other European banks. They are resigned to accepting a government bail-out package expected to be announced soon, after weeks of resisting any interference from the government.

With little exposure to toxic assets their capital ratios are low compared to banks in countries such as the United Kingdom, which have had to take dramatic steps to recapitalise their banking systems.

With an initial €15bn to €20bn in total, in the form of a mandatory convertible bond issue, all banks could boost their core tier one capital ratios to that of European banks in general, around 8 per cent, from the current ratio of less than 7 per cent. There is no official requirement for the banks to raise capital, but analysts say a core tier one ratio of 8 per cent is likely to become the minimum standard.

The Italian government is not expected to set a new benchmark for the country’s banks as part of the package, reports the FT, and it will be up to the banks themselves to decide whether they want to participate in the state aid package. Individual banks have taken measures already, such as cancelling dividend payments and tapping shareholders.

' No Italian bank has required the sort of bailout that was offered to Fortis, Royal Bank of Scotland, and other European banks.' (FT).