The two banks are struggling to cope with a large number of bad loans and on Friday (June 23), the European Central Bank pulled the plug on them. The decision to rescue them was taken at a special cabinet meeting on Sunday (June 25).
The Italian Prime Minister Paolo Gentiloni has defended his government's swift action, claiming a "disorderly" failure of the two banks could endanger Italy's slow economic recovery.
Mr. Gentiloni said the decision was taken to help bank account holders and savers, rather than bank employees. Around 4,000 bank workers could still lose their jobs.
The deal will involve the retail bank Intesa Sanpaolo taking over the banks' "good" assets while around 12 billion euros (US$13.44 billion) will be furnished to shore up a hole in the two banks' finances where creditors have failed or are likely to fail to pay back loans.
Intesa Sanpaolo will be given 4.8 billion euros ($5.38 billion) to "maintain capitalization".
#Italy commits up to €17bn for Veneto banks liquidation. Intesa Sanpaolo to take over good assets, taxpayer bad bank https://t.co/gMdtcTKFdY pic.twitter.com/xu3KouRc1I
— Holger Zschaepitz (@Schuldensuehner) 25 June 2017
As from Monday morning (June 26) the two banks' workers will be employees of Intesa Sanpaolo but it is unclear whether the branches will be rebranded.
The European Commission, which could have vetoed the use of state aid to prop up the banks, has already approved the rescue plan.
"The European Commission has approved, under EU rules, Italian measures to facilitate the liquidation of BPVi and Veneto Banca under national insolvency law," they said in a statement.
Italian Prime Minister Paolo Gentiloni said the rescue was needed to protect savers and ensure "the good health of our banking system."
"Those who criticize us should say what a better alternative would have been. I can't see it," Economy Minister Pier Carlo Padoan said.
Experts feared the collapse of the banks could result in a domino effect, pulling down other banks who have lent money to them.
The European Commission's competition commissioner, Margrethe Vestager, said the plan would "avoid an economic disturbance in the Veneto region" of north-east Italy.
"These measures will also remove 18 billion euros ($20 billion) in non-performing loans from the Italian banking sector and contribute to its consolidation," Vestager added.
We have approved aid to facilitate market exit of Vicenza & Veneto banks under Italian insolvency law. Depositors will be fully protected.
— Margrethe Vestager (@vestager) 25 June 2017
Italy's banking system is said to contain 350 billion euros (US$392 billion) worth of bad debts — a third of the eurozone's total.
The Italian government recently agreed a state bailout for the Monte dei Paschi di Siena bank.
