Another deflationary demand leakage:Bank of Italy Urges Banks to Retain Earnings, Preserve Capital
March 15 (Bloomberg) — Italian banks should retain earnings and cut bonuses to boost their capital as the country’s longest recession in 20 years undermines lenders’ profitability, the Bank of Italy said. Banks are not allowed to pay variable bonuses to senior executives and pay a dividend if they posted a loss in 2012, the central bank wrote in a bulletin. Lenders should retain earnings even if their core Tier 1 ratio is below a set target set by the central bank. Lenders including UniCredit SpA and Intesa Sanpaolo SpA are cutting costs, reorganizing their branch networks and selling assets to strengthen their balance sheets and boost equity. Banks should also increase their provisions for bad loans and further reduce costs, the Bank of Italy said, adding that it will review the banks behavior.