Italy moves to inject liquidity into system

ITALY MOVED to inject liquidity into its financial system yesterday, offering to guarantee new bank bonds, help banks seek refinancing and provide as much cash as necessary for their recapitalisation.

Prime minister Silvio Berlusconi's cabinet approved the measures in a sweeping decree, part of a co-ordinated European response to the global financial crisis.

"This is naturally aimed at creating stability, confidence but also liquidity for businesses, for the real economy, for consumers," said economy minister Giulio Tremonti.

Mr Berlusconi was in Washington and voiced confidence that the rescue measures on both sides of the Atlantic would be effective.

"I'm 100 per cent sure and confident that we have the means and ways to prevent this [a financial meltdown] from happening and that the wealth that our citizens enjoy will not be affected by this."

The Italian decree makes it easier for banks to seek loans from the Bank of Italy by lowering the amount of collateral they need to €500,000 from €1 million previously. The treasury will guarantee new bonds issued by banks until December 31st, 2009, with a duration of up to five years.

The Bank of Italy will also temporarily swap state bonds for lower-quality bank debt up to a total of €40 billion, starting on Thursday.

"For those banks that would like to refinance themselves it is now possible to temporarily convert, to swap the paper of inferior quality that they have in their own portfolios for Bank of Italy notes and to take these to the European Central Bank for refinancing," Bank of Italy governor Mario Draghi said.

- (Reuters)

© 2008 The Irish Times

This article appears in the print edition of the Irish Times