Italy revises controversial bank windfall tax amid criticism and ECB concerns

Amended tax proposal

Italy's government has reconsidered its contentious windfall tax on banks in response to widespread criticism, including from the European Central Bank (ECB). A proposed amendment allows banks to choose between paying the levy or increasing their non-distributable reserves, which cannot be distributed as dividends, by an amount equivalent to two and a half times the tax. However, the amendment is subject to approval by parliament and may undergo further changes.

Initial tax announcement

Prime Minister Giorgia Meloni's hard-right government initially announced a one-time 40-percent tax on banks' "surplus profits" resulting from the ECB's series of interest rate hikes over the past year. This unexpected move alarmed investors and caused Italian bank shares to plummet. The government later modified the plan, capping the new tax at 0.1 percent of a bank's assets.

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ECB's concerns

The ECB expressed its concerns about the tax's potential impact on banks' capital buffers in a legal opinion issued on September 13. They warned that the tax could weaken these buffers, rendering banks more susceptible to future economic shocks.

In summary, Italy has reconsidered its bank windfall tax, offering banks an alternative to the levy. This decision comes after criticism, including concerns from the ECB, and aims to address the potential consequences of the initial tax proposal on banks' financial stability.

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