The rout in Italian banks stocks is due to a misunderstanding of the euro zone's post-financial crisis regulatory regime, the Italian finance minister said on Friday.
Pier Carlo Padoan, who has led Italy's ministry of economy and finance since 2014, said that markets had panicked unnecessarily after a string of Italian banks reported on Monday that the European Central Bank (ECB) had asked for more details of Italian banks' impaired loans.
"Some information request, which was totally neutral, technical and fine, was interpreted as the way the new world impacts on banks. This is clearly something that needs to be fixed," he said at a CNBC panel on Friday at the World Economic Forum in Davos, Switzerland.
Some European banks, particularly those in Italy, are saddled with soured loans that cramp their ability to make new loans and thus stimulate the real economy.
The news this week that banks, including UniCredit, Banca Monte dei Paschi di Siena and Banco Popolare, must share information with the ECB, hit the Italian financial sector hard.
For instance, shares of Banco Poplare are down 21 percent on the year and short-selling of the stock was banned on Thursday amid market tumult.
However, Padoan told the panel he did not think it was a mistake for regulators to have made the request public.
"I am not saying that the regulatory system is wrong. I'm saying a very simple thing, that we need to understand how this new machine works in practice," he said.
On Thursday, Nikhil Srinivasan, the chief investment officer of Italian insurer, Generali, said concerns about Italian banks were exaggerated and the selloff was due to broader market fears.
"There is no need for alarm. People are going to sell markets where they own things and they're not sure what they own and I'm not sure they knew what was owned in the Italian banks — not that the Italian banks are in bad shape," he told CNBC in Davos.
Teneo Intelligence said on Wednesday that restoring confidence in Italian banks would be a lengthy process.
"The reforms already approved will take time to yield some tangible results. For instance, the reform of the so-called Banche Popolari involves a transition period until September 2016 and March 2017 for listed institutions. Other key measures – including the reform of the cooperative banks and, crucially, the creation of a mechanism to tackle the NPLs (non-performing loans) issue — are stalled," Wolfango Piccoli, co-president of the risk consultancy, said in a research note.