Atlante will be no panacea for what ails Italy's banks

Subject

Italian banks and Atlante fund.

Significance

Italian banking is at a critical juncture. The large volume of non-performing loans (NPLs), uncertainties related to the first steps of the EU banking union and changes in the resolution framework are impairing confidence in the system. The bail-in of four regional banks at end-2015 was a wake-up call, prompting the government to sponsor the Atlante (Atlas) private equity fund to reduce the risk of further bail-ins.

Impacts

• Atlante is the last resort to avoid a potential meltdown of the Italian banking system.
• The Treasury's estimate of the nominal NPL amount that the fund could buy is likely to prove optimistic.
• Atlante is unlikely to boost NPL demand much, as this is a risky asset class to securitise, with high leverage.