Italy has set a cap on its new windfall tax on banks in an apparent backtrack after the surprise announcement of the levy sent shares in the country’s lenders plunging.
Rome limited it to cover only 0.1% of total bank assets, a fifth of the level that analysts had earlier estimated the levy could reach, in an announcement late on Tuesday.
The change came a day after the government announced the 40% tax on the huge margins that banks have made through rising interest rates by increasing the amount they charged mortgage and loan holders faster than they improved returns to savers.
The decision sent bank shares plunging, with stock in Italy’s largest bank, Intesa Sanpaolo, falling 8.67% to close at €2.338 (£2.01) on Tuesday afternoon, while Unicredit closed 5.9% lower at €21.28.
While other European countries, such as Spain and Hungary, have introduced windfall taxes on banks, analysts said Italy’s decision found the market unprepared and was particularly damaging for investor confidence.
The conservative government of the prime minister, Giorgia Meloni, had floated the idea of a bank tax but it seemed to have dropped the plan and the actual decision came as a surprise even to ministers gathered for a cabinet meeting on Monday night.
In an attempt to reassure markets, the Treasury late on Tuesday said the proceeds from the tax would not amount to more than 0.1% of lenders’ total assets.
The proceeds from the tax are expected to remain below €3bn, according to sources in Rome and analyst calculations.
The tax, which sent shock waves across the European sector, targets the rate-driven increase in banks’ net interest income, or the profit lenders reap from the gap in lending and deposit rates.
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As the European Central Bank raised official rates, banks have been increasing the cost of loans while holding off on rewarding depositors more for their cash.
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