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Italian banking merger held up by ECB

Italian banking merger held up by ECB

(14 March 2016 – Italy) The European Central Bank (ECB) is proving a hurdle for a merger of Italian banks

Executives have warned that the proposed merger between Banca Popolare di Milano and Banco Popolare may collapse should it fail to secure approval from Frankfurt regulators in April.

The deal is a key part a reform pushed by Italian Prime Minister, Matteo Renzi, designed to trigger mergers between country’s largest mutual banks in a bid to strengthen the sector. Renzi has made reform of the sector a priority as it weighs on lending and a weak economy that grew just 0.1 percent last quarter.

One source to the Financial Times that if the merger collapses it could leave several mutual banks in a precarious position, amid growing investor nervousness about the impact of large bad debts and negative interest rates on the sector.

Senior bankers say that retail depositors are moving funds out of weaker lenders to the larger banks as headlines continue to highlight probes by European authorities of Italy’s banks. As such, the ECB is monitoring liquidity levels.

“What worries me is that it is not understood [by European authorities] that they risk pushing Italy into a situation where it does not have the strength to come back,” said an Italian bank chief executive.

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