Italy approves a tax on bank profits. Italian financial institutions faced a sharp market reaction, with a notable drop in value on Tuesday as the government led by Giorgia Meloni signaled a measure aimed at extraordinary profits. A 40% levy on extraordinary bank gains was introduced, triggering a broad response across the Milan Stock Exchange, which recorded a decline in market capitalization.
The Ministry of Economy and Finance issued a formal explanation at the close of trading, detailing how the levy would be implemented and the social aims behind it. The measure seeks to relieve taxpayers by reducing burdens on mortgage holders and families and to bolster state revenue by a sizable margin. Specifically, the extraordinary levy is capped at 0.1% of banks’ total assets across 2022 and 2023 and cannot consume more than 25% of net equity. The department, led by Giancarlo Giorgetti, emphasized that the policy would support the stability of the banking system while maintaining financial balance.
Trading closed with a sharp correction in the sector after the surprise levy announcement, though subsequent clarifications helped stabilize expectations. A day later, market participants absorbed the new framework and navated the updated scope, resulting in a partial recovery in the sector’s sentiment and performance.
At the close of the midweek session on the Milan Stock Exchange, several major banks posted gains. Banco BPM rose by about 5.45%, UniCredit advanced around 4.37%, and Mediolanum increased roughly 2.68%. Banca Monte dei Paschi di Siena climbed about 2.47%, Intesa Sanpaolo gained 2.33%, and BPER Bank rose approximately 2.21%. Mediobanca, which had helped cushion earlier sector declines, finished the day modestly higher, up around 1.04% after a prior drop. The broader European banking index, the Stoxx Banks, reflected limited spillover effects from the Italian move, rebounding about 1.3% following a larger earlier decline.
The tax framework includes a rule that triggers higher impact if the interest margin in 2022 rises more than 5% versus 2021, with a potential increase up to 10% in 2023. The interest margin, which excludes commissions and product sales such as funds and insurance, represents the classic banking margin: the difference between returns earned on loans and the cost of funds raised through deposits.
The levy, announced after the cabinet meeting, could only amount to roughly €2.5 billion for the six largest Italian banks, including Intesa Sanpaolo, UniCredit, Banco BPM, Monte dei Paschi di Siena, and BPER Banca, based on first-half 2023 results that showed profits well above those of the prior year. Analysts noted that while the levy would cost banks billions, it did not materially threaten their solvency because it would likely be absorbed through capital distribution adjustments, including dividends. This interpretation aligns with assessments from Scope Ratings, which highlighted potential minor CET1 impact yet overall resilience for the biggest institutions.
Small and regional banks were spared from the extraordinary levy as part of the government’s policy design. The move also followed ongoing ECB rate hikes, which have tightened bank margins across Europe. Some financial institutions had already increased deposits fees for customers, following recommendations from the Bank of Italy issued on a prior date. In a continental context, competition within the Italian banking sector remains notably more intense than in some neighboring markets, thanks to a dense network of regional lenders.
The Meloni government framed the measure as consistent with European-level regulations on non-bank margins and as a temporary instrument aligned with broader fiscal approaches observed in several European countries. Spain, the Czech Republic, and Hungary announced additional or similar banking profit levies, while France considered temporary caps and other markets discussed imposition of the levy on various margin components. The policy also touched on a contribution to Belgium’s Deposit Guarantee Fund and related commission-based considerations, illustrating a shared European approach to stabilizing the sector amid higher interest rates.
stock recovery
On the same midweek day, market conditions began to stabilize as investors reassessed the sector. Early gains were led by banks showing positive momentum across the board. In the broader market index, several banks posted gains with varying degrees of strength, signaling renewed confidence in the banking group after earlier volatility.
In the Milan market, notable performances included financial institutions delivering meaningful recoveries. Specific banks demonstrated gains ranging from modest to substantial as traders recalibrated expectations for the sector’s earnings trajectory and capital position. The Milan Stock Exchange’s main bank index closed higher, reflecting a broader reorientation toward bank equities amid a backdrop of shifting regulatory signals and ongoing macroeconomic considerations.
Overall, the episode highlighted how a single policy move can briefly unsettle markets but also how a well-communicated framework can pave the way for a measured rebound. The incident underscored the sensitivity of bank stocks to policy changes and to the broader environment shaped by central bank actions and EU regulatory signals. For investors, the episode offered a reminder to balance income goals with risk exposure in a sector known for high volatility and strategic importance within European financial markets.