This content is from: Local Insights

New banking system rules

The present international crisis of the economic, financial and banking system has urged the Italian legislator to come up against the crisis through the adoption of new provisions in favour of banks.

Rules have been introduced by Law Decree 155 of October 9 2008 (Decree 155), converted with amendments into Law 190 of December 4 2008.

Decree 155 provides substantial and extensive interventions to be made by the Ministry of Economy and Finance (Ministry) in favour of Italian banks and for the safeguard of depositors.

The Ministry is, in fact, authorised to subscribe or guarantee the increase in the share capital of Italian banks in relation to which the Bank of Italy has ascertained the inadequacy of the assets.

The Ministry is allowed to make such interventions until December 31 2009 and provided that: (i) the increase in the share capital of the bank has not yet been finalised at the date of the entering into force of Decree 155 (October 9 2008); and (ii) that a programme for the stabilisation and strengthening of the bank having a minimum duration of 36 months has been prepared (which is subject to the assessment of the Bank of Italy as to its adequacy).

The existence of the abovementioned requirements is subject to the assessment of the Bank of Italy on the basis of which the Ministry is allowed to subscribe or guarantee the increase in the share capital.

The shares held by the Ministry as a consequence of such interventions are not provided with voting rights but are preferred to the other shares in the distribution of dividends.

The Ministry is also allowed to make the abovementioned interventions in favour of banks subject to extraordinary administration or forceful administrative liquidation pursuant to the Italian Banking Act.

In addition, the Ministry is authorised to guarantee, on market conditions, any liabilities incurred by Italian banks having a maximum maturity of five years and incurred after October 13 2008, as well as to guarantee transactions entered into by Italian banks (Guarantees).

The Ministry is also allowed to proceed with temporary exchanges of government bonds with financial instruments held by Italian banks or with liabilities incurred by such banks and meeting the abovementioned requirements (Temporary Exchanges).

The Guarantees may be granted and the Temporary Exchanges may be made until December 31 2009, on the basis of the assessment made by the Bank of Italy of the adequacy of the assets of the bank and the capacity of such bank of being able to fulfil the obligations undertaken pursuant to the relevant transaction.

The rights of the Ministry arising from the Guarantees and the Temporary Exchanges have a general lien over movables and immovable properties of the relevant bank, which ranks higher than any other lien existing thereon.

According to Decree 155, funding granted by the Bank of Italy in favour of Italian banks or Italian branches of foreign banks for the purpose of emergency liquidity assistance may be assisted by a guarantee to be granted by the Ministry until December 31 2009.

In addition to the other interventions in favour of depositors, as set forth in the Italian Banking Act, the Ministry is also allowed to grant a further guarantee in favour of depositors for a 36-month period since the entering into force of Decree 155 (October 9 2008).

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