The EU Commission and the Italian government agreed late Tuesday to help Italian banks shed some of their €200 billion in bad loans.

The deal comes after almost a year of negotiations between Italy and the Commission about how the Italian government could rescue some of Italy’s biggest banks which had struggled under the weight of non-performing loans (NPLs). Italy had wanted to create a “bad bank” to collect all NPLs but this proposal was rejected by the Commission, which considered that it would have distorted the competition among European banks.

Under the deal banks will move their non-performing loans to separate entities in order to securitize them — sell debt backed by these assets. The Italian government will then sell warranties to the banks to guarantee the most-secure tranches of this debt.

Margarethe Vestager, the EU competition commissioner, said that the deal agreed Wednesday would not constitute state aid because “the value of the warranty will depend on the market prices.” She added that “coupled with other reforms, that have already been adopted or planned by the Italian authorities, this accord should further improve the capacity of banks to lend to the real economy.”

The Italian Economy Minister Pier Carlo Padoan said that the Italian government was satisfied with the deal, calling the new mechanism “a very useful instrument for the management of the non-performing loans.”

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