Italian cabinet approves decree on compensating for depositor losses

The Italian cabinet on Friday passed a decree to make up for thousands of small bondholders who lost their savings due to the government's rescue of four banks last year, and to speed up the recovery of bad loans issued by banks.

All savers that had bought bonds in the four rescued banks of Banca Etruria, Banca Marche, Cassa di Risparmio di Ferrara, and Cassa di Risparmio di Chieti by June 12, 2014 are qualified to ask for a partial reimbursement up to 80 percent of their losses, as long as their personal income was under 35,000 euros (40,000 U.S. dollars), or disposable assets less than 100,000 euros (114,500 U.S. dollars), according to the partial compensation scheme.

"The compensation for them (depositors) will be automatic, and no arbitration will be needed," Italian Prime Minister Matteo Renzi said in a press conference after the cabinet's meeting.

However, savers who bought bonds after that date will have to resort to an arbitration procedure to try to recover their losses.

Renzi's cabinet has allocated 100 million euros (114.5 million U.S. dollars) in the 2016 budget to cover the depositors' losses, but the overall amount of money needed in this operation is yet to be confirmed.

"The amount of the resources needed is difficult to estimate yet, because it depends on the effective implementation of automatic reimbursements and on the outcome of all arbitration procedures," Finance Minister Pier Carlo Padoan explained in the press conference.

The minister assured that the funds will not run out, explaining that "there will be money for all those who are eligible, and this money comes from the banking system."

Italian finance ministry's data showed that 10,500 people lost their investment in November 2015 for having bought junior bonds of 329 million euros (377 million U.S. dollars) from the four small banks.

Specifically, these banks were rescued from bankruptcy also by using a 3.6 billion euros (4.1 billion U.S. dollars)' Resolution Fund financed by the private healthy banks in the country.

These bailout moves were part of Italy's effort to rescue the four banks under the strict rules by the European Union that left the losses to share and bondholders to be dealt with by themselves.

In the decree, the cabinet also approved measures to change bankruptcy laws so as to speed up the bad loans' recovery process.

"The time to recover the bad loans of juridical entities (firms), not natural persons, will be reduced to six to eight months from the previous six to eight years," Renzi said.

The new laws also requires that in a loan contract banks and creditors should agree to bypass the judicial system and allow repossession of collateral in case of defaults.

Italian banks were burdened with some 360 billion euros (412 billion U.S. dollars) in bad loans in 2015, according to Italy's central bank. Endi