The Italian government has decided to launch a new banking bail-out scheme for the troubled Italian bank Monte dei Paschi Di Siena. Earlier this year, banking bail-outs became illegal without ensuring creditor liability by bailing in at least 8% of total liabilities before any public funds may be used. The Italian government has been pushing the EU Commission to allow an exemption to this general rule in the Bank Recovery and Resolution Directive (BRRD), the so called “precautionary recapitalisation”. The bail-out has still to be approved by the European Commission. The Italian government would like to exclude the bail-in of senior creditors and big depositors that could be affected in case of full enforcement of BRRD as only the more limited state aid rules for the financial sector had to be respected.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“This new bail-out is a violation of the rules of the European banking union. The Italian government is ignoring recently approved European rules to protect tax-payers and fair competition. This is an unacceptable breach of the firewall between governments and banks and will severely knock confidence in the banking union. The bail-out is a litmus test for the EU Commission: with many more banks in Italy, Cyprus, Greece and Portugal in a comparable situation, approving the precautionary recapitalisation of the Italian bank could lead to a new series of banking bail-outs. With such a political decision, the EU commission put the completion of the banking union in danger. Trust in the EU Commission and the banking union would be badly damaged. It will be very difficult to argue in Germany for a European deposit guarantee funds (EDIS) after the rules were broken in such a blatant precedent.
EU law in the banking recovery and resolution directive (BRRD) only allows precautionary recapitalizations, if a bank is solvent and excludes the covering of losses likely to occur in the near future. Monte dei Paschi Di Siena suffers from non performing loans of more than 200 percent of its core capital for which no provisions have been made. Therefore, the EU Commission as guardian of the treaties should reject the precautionary capitalization of Monte Paschi Di Siena. Commissioner Vestager holds now the fate of the banking union in her hands. She should defend the credibility of the banking union and resist any pressure to allow a more limited bail-in under the state aid rules for the financial sector. All potential new state aid by the Italian government to Monte dei Paschi should be clawed back and full bail-in of creditors executed as foreseen by EU law.
Public funds to rescue banks must be avoided. Since the crackdown of the Monte dei Paschi Di Siena would affect many small bondholders who were mis-sold risky debt of their own bank, those citizens must be protected from losses. We urge the Commission and the Italian Government to secure this compensation to avoid repeating in Italy what happened in Spain where citizens affected by misselling lost all their money. This can be done while fully respecting European law.”