Last Tuesday after months of negotiations, Italy finally reached an agreement with the EU regarding a solution to the Italian banks' non-performing loans problem with a scheme that has been confirmed does not constitute State aid. Broadly, rather than create a "bad bank", it has been decided that the Italian government will guarantee senior tranches of securitisation ABS backed by NPLs.

Details of the scheme are described in a press release published by the Italian Ministry of Finance on 27 January 2016 and are summarised below. It is expected that a Decreto Legge will be passed in the coming weeks converting the proposal into law.