Italy sets 0.1% cap for new bank tax after market rout

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Italian banks closed down 7.6%, with sector leader Intesa Sanpaolo (BIT:ISP) losing 8.6% and mid-sized BPER (BIT:EMII) down 10.9%.

While other European countries, such as Spain and Hungary, have introduced windfall taxes on banks, analysts said Italy’s decision found the market unprepared and was particularly damaging for investor confidence.

The conservative government of Prime Minister Giorgia Meloni had floated the idea of a bank tax, but it seemed to have dropped the plan and the actual decision came as a surprise even to ministers gathered for a cabinet meeting on Monday night.

In a bid to reassure markets, the Treasury late on Tuesday said the proceeds from the tax would not amount to more than 0.1% of lenders’ total assets.

Earlier on Tuesday Citi analysts had estimated the tax could bring into state coffers a sum amounting to as much as around 0.5% of total 2023 risk-weighted bank assets (RWAs).

The proceeds are anyway expected to remain below 3 billion euros, according to sources in Rome and analyst calculations.

The tax, which sent shockwaves across the European sector, targets the rate-driven increase in banks’ net interest income, or the profit lenders reap from the gap in lending and deposit rates.

As the European Central Bank raised official rates, banks have been hiking the cost of loans while holding off on rewarding depositors more for their cash.