June 6, 2018 / 6:32 PM / a year ago

League says Italy co-op bank reform would see foreigners fill capital gap

ROME (Reuters) - A prominent senator in Italy’s ruling coalition said a reform of cooperative banks, which the new government wants to change, would allow foreigners to gain further traction in the local market unless it is amended.

Alberto Bagnai told Reuters that as it stands, the reform would open the way for foreigners to fill an estimated 2.5 billion euro ($3 billion) capital shortfall and eventually reduce bank lending to small firms.

Under a reform passed by the previous centre-left government, hundreds of small cooperative banks are being forced to merge into two large groups which will fall under direct European Central Bank oversight due to their large size.

The reform was aimed at strengthening such small banks, which have a higher proportion of soured loans than average and lower loan loss provisions according to the central bank.

Bank of Italy Governor Ignazio Visco has repeatedly urged them to press ahead with the reform and draw up capital plans to fill any potential shortfalls.

“The reform would be doubly harmful, distancing cooperative banks from their local communities (turning them into branches of bigger national, or international, groups) and placing another piece of our banking system into foreign hands,” said Bagnai, who is widely expected to be named an under-secretary in the new administration.

Earlier on Wednesday, new Prime Minister Giuseppe Conte said the government would review both the reform of cooperative lenders and another landmark reform of large mutual banks.

Reporting by Gavin Jones, writing by Valentina Za, editing by Crispian Balmer

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