Italy Granted "Extraordinary " €150BN Bank Bailout Program To Prevent "Panic, Run On Deposits"

Tyler Durden's picture

As we noted today, the rumors of an Italian bank bailout, which started on Monday morning, and were promptly shot down by Merkel the next day, got louder after a Reuters report that the Italian government is considering more creative ways to inject liquidity into Italy's banks. However that was just an appetizer to a main course, which came later today when as the WSJ reported citing a spokeswoman for the European Union’s executive arm that the "European Commission has authorized Italy to use government guarantees to create a precautionary liquidity support program for their banks."  

How did this happen so quietly under the table and without Merkel's blessing? WSJ says that the program was approved under the bloc’s “extraordinary crisis rules for state aid."

And here we thought that Italy's banks are actually doing so very well.  Oh wait, no we didn't.

As the WSJ notes, the proposed "crisis" plan is the "other leg of an intervention plan considered by the government" namely, the direct capital injection into Italian banks that would add up to €40 billion in capital to the banking sector", the one we profiled previously. It is also the plan that Merkel supposedly shut down before it got off the ground. However, Europe had a Plan B up its sleeve.

What are the details of this latest "crisis" program?

According to an EU official, the liquidity support program includes up to €150 billion ($166 billion) in government guarantees. The WSJ adds that the commission spokeswoman declined to comment on the amount of guarantees that were authorized, but said that the budget requested by the Italian government had been found to be proportionate. The Italian economy ministry declined to comment.

An amusing sidebar: "only solvent banks would qualify for the liquidity support program, which has been authorized until the end of the year." The problem is that with €360 billion in NPLs, every bank in Italy is insolvent, which implicitly means that they will all be found to be solvent or otherwise nobody will benefit.

Confirming the severity of the Italian fiasco, is that the decision which was taken on Sunday, had not been previously disclosed until the WSJ reported on it and "appears to be a first indication of governments moving to shore up banks in the wake of market turbulence following the Brexit referendum in the U.K."

In other words, just as we said before, Brexit was nothing more than a Europe-blessed "crisis" ploy designed to achieve two things: unleash more QE, which the BOE admitted will happen (most likely with the involvement of the ECB), and ii) to facilitate the bailout of insolvent Italian banks. To wit:

Brexit will be just the scapegoat used by Renzi and Italy to circumvent any specific eurozone prohibitions. And if it fails, all Renzi has to do is hint at a referendum of his own. Then watch as Merkel scrambles to allow Italy to do whatever it wants, just to avoid the humiliation of a potential "Italeave."

And while Angela Merkel apparently shut down the original proposal pitched by Italy, Europe - surely under the guidance of Mario Draghi - has found a way to circumvent her veto power.

“As this decision and other precedents demonstrate there are a number of solutions that can be put in place in full compliance with EU rules to address market turbulence,” the spokeswoman said.

To be sure, Italy's market has indeed been turbulent: Italian banks have lost more than half of their market capitalization since the beginning of the year, as investors fret about the lenders’ huge exposure to bad loans. That compares to an average decline of less than one third for European lenders. Some Italian banks have seen their shares drop by some 75%.

But what is most stunning is the WSJ's conclusion of what the plan is supposed to prevent - it is not to halt the stock price collapse, it is to prevent a bank run:

A person familiar with the Italian government plans said the cabinet of Prime Minister Matteo Renzi hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits and affect banks’ liquidity.

Needless to say, for Italy's Prime Minister to be contemplating how to avoid "investor panic" and prevent a "run on deposits", then Italian banks must truly be on the verge of collapse.

Finally, for those curious about timing and how soon until it all unravels, we quote the European Commission spokesman who said that “there is no expectation that the need to use this scheme should arise.”

What this statement really means, and whether a preemptive plan to bailout Italy's insolvent banks will "boost confidence", we leave up to readers decide.

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mantrid's picture

now that was fast, totally bypassing Berlin, Germans might want Gerxit :D

jcaz's picture

Yeah, that will fix it.....   Rioting avoided for one more week- nice job.

BaBaBouy's picture

EU Money For Nothing, Chicks For Free ...

Open The Spriggots, Open The Taps ...


mtl4's picture

Welcome to Federal Europe........ There can be no democratic choice against the European treaties.

BaBaBouy's picture

EU Peoples Better start loading UP on PM's !!!

Protect what you got in Your Fiats paper Savings ...

SILVER is not even waiting for GOLD this week, SILVER already moving ...

nibiru's picture

More bailouts! Yes this is the way forward!

Draghi open Pandora's box once again and now everyone will be jealous of such bailout.


Imagine the chaos in few months time when banks will be far from being 'bailout-able'

Manthong's picture

Don’t be surprised if it has the exact opposite effect.

knukles's picture

Well I for one didn't know that there was an existential crisis with Italy's banks until the EU started screaming about it, running around with their hair on fire, chewing a whole package of fresh shitgum.

Manthong's picture

Was that cowmint or horsemint flavored gum?

stacking12321's picture

we are making some progress here!

at least the eu is now openly admitting that there is a banking crisis.

knukles's picture

Yeah.  And it's Brexit's Fault!

Haus-Targaryen's picture

I think this is quite interesting -- 

Should these "guarantees" come to pass whose balance sheet is this €150 Billion going to go on as an accounts receivable?  


ECB? The lawsuits from angry German economics professors are likely already in the mail.  The red caped morons will have to find another excuse why the law they're interpreting is meaningless when compared to the "expirment." 

If I had to guess, it starts life as freshly minted Rainbowland currency in FFM, then gets shipped off to Italy as debt (so ECB has Acct's Rec in favor of Italy while Italy now has a €150 Billion Accts Payable in favor of the ECB.  Then Italy "lends" this cash to Italian banks as an accounts receivable with the banks as an accounts payable.  

I understand they are trying to shore up confidence by stopping out the shorts of Italian bank stocks, despite what they say, however this will only dissuade these people form doing so for a little.  The shorts will return, likely at the least convinient time.  

Keep cash and physical at home under the mattress everyone.  Value of physical will skyrocket when the digital 1's and 0's become inaccessable.  

knukles's picture

Why, that's shitmint, my man!  Original flavor shitgum

metastar's picture

The Italians will ultimately pay, just as the Greeks. It is part of the plan of world domination.

Mountainview's picture

EURO Draghi's Europe isn't England's Europe

RaceToTheBottom's picture

Close, but watch the encumbrances on Italy's gold.  Italy has one of the largest Gold stashes in the world, especially for such a small country.

See whether the bailouters are getting their hands on that gold.

Never say debt does not have a purpose.....


Manthong's picture

Maybe they don’t have as much as they think they do.

fiatmadness's picture

Ha, the Germans are still waiting for their gold from US, years after requesting! If it was any other country there would have been war!

Yukon Cornholius's picture

Hell yeah it is! SIIIILLLL-VERRRRR!

Hungman's picture

Silver is supposed to lead during a crisis or a crash. That is when you know it is the real deal.

Okienomics's picture

Last three months, PHYS (gold) up 9.5%, SLV (silver) up 16%.  You making the call?

max2205's picture

Student loans Italian style 

Joe Cool's picture

Mark Knopfler for PM...

agstacks's picture

I love how they edited Money for Nothing years later to remove that unsightly homophobic slur..  

remain calm's picture

Money for nothing , Muslims for free. Fixed for you. ;)

newmacroman's picture

When are you peeps going to use the proper vernacular...

It's Ewe, not EU

Britain is singing Baa Baa Black Sheep faster than BaaBaaBouy.

Maybe they will float after all?

Kirk2NCC1701's picture

It is not the "Run on Cash" (fiat chits) that worries their cash printing facilities, it is the Unintended Consequences of a "Bear Run" that worries and scares the Gods of Fiat Debt and Modern Financial Slavery.

The Dominos don't start falling until the Derivatives Market start spiraling out of control. After it reaches Critical Mass, the Fiat Pinball machine hits 'Tilt' and it's Game Over.

peddling-fiction's picture

I hear 555 Trillion of derivatives thumping in the steam cauldron.

Tall Tom's picture





Let the trumpets play loud.

Zero Point's picture

Avoiding rioting for one more week is a method that has been working for well over 5 years I'd say.

gatorengineer's picture

Nothing bypasses Germany, If the Italians got 150 billion printed, you can bet Douche is going to get 500B or more.

RaceToTheBottom's picture

Actually Dousch Bank will probably require a few Trillion so the more that goes out to other Euro banks, the better.

gatorengineer's picture

Well, I differentiate between what the public number will be and the real number.....

This is Lehman 2.0, on steroids but done with Stealth.

fiatmadness's picture

I propose a UK,German,Franco, Dutch alternate EU, would make far more sense, our economies are better aligned.

JRobby's picture

A delicate balance just waiting for a breeze........

It has been propped up by lies since Sept 2008, the entire world banking system.

"False Flag Bank Op"

Dodgy Geezer's picture

Actually, Deuxit - for Deuchsland...

Latitude25's picture

150 fucking billion?  This is a joke , right?

Lanka's picture

That would be classified as a bazooka, until it dwarfs into a pea shooter.

newmacroman's picture

Remember when 1998 LTCM was $100 billion destroy the world before 2008 tanks in the street?

One fiddy is now a rounding error in derivitive kagillions.

Yup a big friggin Deutsche cleaning on the way

Aubiekong's picture

If you are an Italian and you still have money in the banks you deserve to lose it...

Bismarckrises's picture

So how many of your family members or friends have you managed to convice to leave their money from their banks?

The same vice versa

taketheredpill's picture



The First Rule in avoiding "investor panic" and prevent a "run on deposits" is never to use the words "investor panic" and  "run on deposits"

FrankieGoesToHollywood's picture

The way you counter is "panic deposit".

Herdee's picture

Funny how you got Germans calling all the shots in a last desperation move to print endlessly.The market's got their number and it doesn't look good for the clowns running the toxic show.Intellectual bankruptcy through a NeoCon/Nazi/National Socialist Plan that has backfired.

Rainman's picture

Here it come .. " ITALEAVE "

newmacroman's picture

Or maybe the gold.

Don't keep following Germany's failures.

Will they ever learn?

Stick to wine and food...