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Italy's loan repurchase proposal stirs financial market concerns

Published 19/10/2023, 05:58
Italy's loan repurchase proposal stirs financial market concerns
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The Brothers of Italy party, led by Prime Minister Giorgia Meloni, has proposed measures to aid struggling families and small businesses in Italy, following the bank windfall tax controversy. The proposals would allow defaulting borrowers to repurchase their loans, even if they have been sold to investors. This move, however, has sparked concerns about its potential impact on the country's financial system.

Industry Minister Adolfo Urso warns that these proposals could affect about 1 million households and €279 billion ($320 billion) in bad loans. The non-performing loans (NPL) market, which ballooned to €300 billion during the 2007-2015 economic crisis, could be particularly impacted. Critics, including Orrick lawyer Patrizio Messina, argue that these measures could distort this large NPL market and damage Italy’s financial system.

The situation is further complicated by the Guarantee on Securitisation of Non-Performing Loans, a tool used by the Treasury for balance sheet cleanup. According to research by NPL Markets, these guarantees could lead to losses for the Italian government ranging between €800 million and €2 billion by May 2023.

AMCO, Italy's largest loan servicer, may also face adverse effects due to these proposals. While Finance Minister Giancarlo Giorgetti dismissed the new measures, other officials have suggested more discussions on the matter, indicating potential disagreements within the coalition.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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