Italy's Finance Minister, Pier Carlo Padoan, has said the country's banking system can be recapitalized without a formal bailout or any financial assistance by the European Stability Mechanism (ESM).
Italian policymakers and EU officials have been trying to deal with Italy's fragile banking system in recent months, which has been bogged down by non-performing loans (NPLs) estimated to total 360 billion euros ($400.7 billion).
Reports earlier in the summer had suggested that Matteo Renzi, the Italian prime minister, was hoping to bail out the banking sector with taxpayer money, which would contravene EU rules. Such a solution would stand in contrast to a bondholder "bail-in," but would have perhaps protected Italian households which are heavily exposed to the asset class. Those reports have since been denied and Padoan called the idea "total imagination".
"We are not talking about that kind of money and we are not talking about a bailout. Bailout is ruled out in the European context. So we are working within the rules, within the bail-in system, which implies strong participation by the shareholders and stakeholders in recapitalizing the banks," he told CNBC on the sidelines of the Ambrosetti Forum in Italy.
"This is helped by the fact that we are putting in place a legal framework in dealing with NPLs," he added.