Since the Brexit vote, Italian banks’ shares have slumped dramatically: Italy’s third-biggest bank Monte dei Paschi di Siena has lost half its value. In response, big banks and the Italian government are suggesting to recapitalize the weakest banks with public money. But recapitalization has a price: under EU rules, bank bonds have to be written off if lenders receive state aid.
The results of EBA’s stress test which are to be published end of July will play a crucial role in deciding whether new state aid for banks is possible and whether EU rules on the bail-in of creditors (Bank Recovery and Resolution Directive, “BRRD”) will be suspended.
We have compiled detailed background information on the assumptions of EBA’s stress test and show who would pay the price for a possible bail-in. In case of interest, we can provide this briefing upon request.