Following the Cabinet’s approval of a plan to impose a 40% tax on some bank earnings this year to assist consumers and businesses in adjusting to rising borrowing costs, Italian bank stock prices plummeted on Tuesday.
At a Monday evening press conference, Matteo Salvini, the minister of transport, revealed the levy, calling it an act of “social equity” to make up for a string of interest rate increases by the European Central Bank.
These hikes make it more expensive for people to obtain loans to purchase homes and cars, as well as for businesses to acquire new machinery or construct facilities. They are intended to combat inflation.
In early afternoon trading on the Milan Stock Exchange, shares of UniCredit sank over 7%, Intesa Sanpaolo dropped over 8%, Banco BPM fell over 8.5%, and BPER and Banca MPS both tumbled over 10%.
The tax’s approval reportedly caught banks off guard, and the Association of Italian Banks has not yet made any public comments about it. Analysts predicted that if Parliament approves the proposal—the next step in the process—banks would attempt to alter it or challenge it in court.
According to credit rating company DBRS Morningstar, the five largest Italian banks reported a combined net profit of around 10.5 billion euros ($11.5 billion) in the first half of the year, an increase of 64% from the same time in 2022. It made reference to increased interest income, stable fees, and cost control.
Bank earnings that result from the discrepancy between the interest rates they pay clients on deposits and the interest they receive on loans would be subject to a 40% tax. Salvini stated that “a few billion” euros in tax revenue would be used to pay for tax cuts and aid first-time homebuyers in obtaining mortgages.
He said that the proposal was presented by Finance Minister Giancarlo Giorgetti, who wasn’t present at the news conference to make the announcement.
Now that the idea has been turned into legislation, the right-wing government of Italy needs to get the support of the country’s parliament to pass it.
According to Wolfango Piccoli, co-president of Teneo consultancy, “Banks are widely anticipated to push back against the measure during the parliamentary process, but there is a solid component supporting the move.” In the absence of major changes before legislative approval, the retroactive tax will probably face legal challenges.
Major European banks suffered from the decline in Italian bank shares as early afternoon trading saw declines at Deutsche Bank in Germany, BNP Paribas and Societe Generale in France, HSBC in the United Kingdom, and Banco Santander in Spain.
The European Central Bank (ECB) has increased interest rates nine times in a row in an effort to combat the high inflation that was brought on by rising energy costs after Russia invaded Ukraine and supply chain disruptions while the world economy recovered from the coronavirus outbreak.
The decision to raise the number of taxis that can run was among a number of measures that Italy’s cabinet decided in its final meeting before a summer break, the last of which was the bank tax. Other measures included abolishing forced isolation for COVID-19 cases and increasing the number of taxis that can operate.
Long lines at the taxi stand this summer were caused by a surge in tourism, and with the Vatican’s 2025 Jubilee, the 2026 Winter Olympics in Milan-Cortina, and Rome’s bid to host the 2030 Expo, demand is only expected to increase. The 20% increase in the number of taxi licenses that cities can issue is intended to better address this problem.
