Thursday 16 February 2017 1:04 pm

Italian parliament signs off on €20bn bank bailout fund, as country's lenders creak under billions of euros of non-performing loans

Italy's parliament has today given the thumbs up to the law which will create a €20bn (£17bn) bailout fund for the country's troubled banks.

Parliament gave a decree for the bailout fund, which was issued by relatively new Prime Minister Paolo Gentiloni, the green light last December

Now, Bloomberg has reported the parliament's lower house has given final approval to turn this into legislation, which includes provisions for emergency liquidity guarantees and capital injections for ailing banks which comply with state aid rules. 

Read more: UniCredit just confirmed it is billions of euros in the red for 2016

The nation's lenders are currently struggling under around €360bn in non-performing loans.

Just before Christmas last year, a private sector bailout plan to pump €5bn into the coffers of the country's third largest bank, Monte dei Paschi di Siena, collapsed. The bank, which is also the world's oldest still in operation, is first in line for cash from the new fund and it is currently working on a business plan, which must be approved by the European Authorities. 

A change in EU law since the financial crisis means member states' governments are no longer allowed to bail out struggling banks without the companies' bondholders taking a hit. 

Read more: Why Monte shares might get kicked from their index tomorrow

The Organisation for Economic Co-operation and Development (OECD) warned yesterday that Italy must overhaul its banking system if the country wanted any hope of continuing down the path of recovery. 

The OECD paper also called on the government to insist that holders of bank debt take a hit for the bank's recovery, rather than allowing lenders to rely solely on state bailout cash.