ECB Takes Control of Italian Bank
Posted: 8 January 2019 | Source: The New York Times
The European Central Bank took control of a troubled Italian bank Wednesday, an unprecedented step that spotlighted the risks to the eurozone’s financial system from political chaos in Rome and a sputtering economy.
While the bank, Banca Carige, is a midsize lender, its fate has the potential to reverberate broadly. Among policymakers and economists looking for signs of the next crisis, Italy and its heavily indebted banks have been a source of concern for years. And the policies and statements of the populist government in Rome have recently added to the woes of Italy’s banks, and by extension, the whole economy.
“It’s not a bank large enough to cause systemic crisis,” said Lorenzo Codogno, a former chief economist at Italy’s treasury who operates LC Macro Advisors, a consultancy in London. “But,” he added, “we have seen that even small banks can cause huge problems.”
“The current government is not prepared for a full-fledged banking crisis,” Mr. Codogno said.
The action by Europe’s central bank on Wednesday reassured investors so far that the vulnerabilities of Banca Carige, the 10th-largest lender in Italy, would not provoke a broader crisis.