Italy banking crisis could spread throughout Europe, SocGen chairman says

For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails

Sign up to our free breaking news emails

Please enter a valid email address

Please enter a valid email address

SIGN UP

I would like to be emailed about offers, events and updates from The Independent. Read our privacy policy

Italy’s banking crisis could spread to the rest of Europe and rules limiting state aid to lenders should be reconsidered, Lorenzo Bini Smaghi, chairman of Société Générale, has said.

“The whole banking market is under pressure,” the former European Central Bank executive board member said in an interview with Bloomberg Television on Wednesday.

“We adopted rules on public money; these rules must be assessed in a market that has a potential crisis to decide whether some suspension needs to be applied.”

With Italian banks weighed down by about €360bn (£308bn) in soured loans, the government has been sounding out regulators on ways to shore up lenders amid a renewed sell-off in the wake of the British referendum to leave the European Union.

The government would invoke an EU rule allowing temporary state aid if regulatory stress tests uncover a shortfall at Banca Monte dei Paschi di Siena, a person with knowledge of the discussions said on Tuesday.

Europe’s banking market faces the risk of a systemic crisis unless governments accept the idea of the taxpayer as the ultimate recourse in a crisis, Mr Bini Smaghi said. Any intervention should be as swift as possible, he said.

Both Italy and Germany have too many banks that are not profitable and more consolidation is needed, the chairman said. Italy needs to do more to deal with non-performing loans and Prime Minister Matteo Renzi will have to take politically unpopular steps including cost cuts and job reductions, he said.

“What’s needed is a European solution,” he said. “So far, we’ve had national solutions. We need a clear backstop.”

On Brexit, Mr Bini Smaghi said he expects “very long” negotiations. He expressed concern that Britain’s proposal to reduce corporate taxes to attract companies could lead to risky tax competition across Europe.

© Bloomberg