Italy's banking sector told it needs to play by the rules

 
Hayley Kirton
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An youth Italian supporter waves his nat
Italy's already struggling banking sector was dealt a second blow when the Brexit vote rocked financial markets worldwide (Source: Getty)

Italy's banking sector needs to play by the rules, the Eurogroup's president said ahead of a meeting of eurozone finance ministers.

Italy's banks, which were already bogged down by around €360bn (£307bn) in non-performing loans between them, were dealt a particularly harsh blow when the UK's vote to leave the EU sent their share prices tumbling.

It has been widely speculated that Italian Prime Minister Matteo Renzi is trying to put in place an agreement which would allow the country to inject €40bn worth of capital into the banking system.

However, such an arrangement would involve going around an EU banking directive.

Speaking ahead of a meeting, Eurogroup president Jeroen Dijsselbloem said that the country would need to abide by the law, as the situation did not constitute the kind of crisis that would warrant bending the rules.

Read more: Deutsche Bank chief economist calls for bailout of European banks

"There is not much we can do," said Dijsselbloem, according to Reuters. "The European Commission and the European banking supervisor has to talk to the Italians using the rules [we have set out]."

Dijsselbloem added: "It needs to be dealt with, it will have to be dealt with gradually. There will be no big solutions. I don't think that's possible for this kind of issue and it's not an acute crisis."

Read more: As Brexit fallout settles, US banks get ready to reveal their earnings

When asked to comment on discussions between the European Commission and the Italy, a European Commission spokesperson said:

We are in constructive contact with the Italian authorities.

Based on precedents, there are a number of solutions that can be put in place in full compliance with the EU rules addressing liquidity and capital shortages in banks without adverse effects on retail investors.

The finance ministers are meeting this evening to discuss proposals to boost fiscal capacity in the eurozone. A short statement on the meeting said that, in light of the Brexit vote, the meeting was likely to include calls for "ambitious proposals to make the euro area more resilient to shocks, foster growth and restore trust".

Read more: Six UK banks downgraded by S&P over Brexit concerns

Last week, new European financial services commissioner Valdis Dombrovskis reminded the European Parliament's committee on economic and monetary affairs that the problems presently facing Italy's banks were in place long before the UK's Brexit decision rocked the financial markets worldwide.

"This is not a new development. It is something that is already happening since the beginning of the year," said Dombrovskis.

Results of an EU stress test on banks are due to be published later on this month.

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