Paolo Gentiloni tried to calm down. “It is purely a precautionary measure”, stressed the Italian Prime Minister, at the launch of the new rescue package for distressed banks. It is going to give the banks a “guarantee of Liquidity”, so that they could get on the market own new capital, stated Finance Minister, Pier Carlo Padoan. The rescue package, the government could seize the ailing banks in the country in case of emergency, with up to 20 billion euros under the arms; state Intervention in favour of the banks would be financed through the increase in the national debt, explained Padoan. This is already more than 2.2 trillion Euro, making it the third highest in the world after the USA and Japan.
When the package is nothing more than a Plan B for the case that the marodeste of all Italian banks, the Monte dei Paschi di Siena (MPS), fails in its capital increase of five billion euros.
you will know soon: The subscription period for the new MPS-share runs out this Thursday at 14 o’clock. The private investors are willing to pump new capital into the oldest still-working Bank in the world, have to take the place of the state to prevent a Bank failure and, possibly, a Domino effect at other banks.
non-Performing loans to the value of 360-billion-Euro
The Italian banking system is in a deep crisis: The banks, too many branches afford too much Personal; loans are also not rare, according to political instead of economic criteria. The year-long economic crisis, with tens of thousands of corporate and private bankruptcies has given the inefficient banks for the Rest: Overall, the Italian financial institutions, moaning, in the meantime, under a mountain of non-performing loans to a value of 360 billion euros, 200 billion of which have irretrievably lost. In addition to the MPS a further seven banks to apply at least as hard-to-hit – you, too, are candidates for the new rescue package.
The Problem: Due to the beginning of 2015, which entered into force for EU recovery and resolution Directive for troubled banks are allowed to state financial assistance only if, at the same time, shareholders and creditors for the losses (called the “Bail-in” mechanism) – lose these investors, usually the biggest part of the capital invested. With the new rules should be avoided after the financial crisis, when the threat of Bank failures are always only the taxpayers pay the bill, and the investors would be spared. For Italy, the “Bail-in mechanism”, but potentially for hundreds of thousands of small savers devastating consequences: The Italian banks had blurt up your customers in style your own Bank subordinated debt, to be able to refinance for a relatively cheap price at the risk of their customers.
thousands of savers have been the consequences of the new EU to feel the Directive already get: In the rescue of the four regional banks, Banca Marche, Banca Etruria Cassa di Risparmio di Ferrara and Cassa di Risparmio di Chieti at the end of 2015 to 12,500 retail investors who had invested 430 million euros in the papers of the four banks have lost virtually their whole Savings.
A desperate retired from Civitavecchia took his own life – the result of the Bank drama is the largest crisis of confidence that had experienced the then head of government, Matteo Renzi, during his term of office. Affected only one percent of the Italian savings deposits were, but the fiasco had been enough to unsettle even the owner of the remaining 99 percent.
government wants to circumvent the EU-Directive
Now the Drama at Monte dei Paschi di Siena is threatening to repeat, to a substantially greater extent. In the case of MPS over 40,000 retail investors have created a total of 2.18 billion euros in such subordinated debt and could run out in a government rescue and the related “Bail-in” is now empty. For the recently sworn-in of the population is not very popular government of, Paolo Gentiloni, this would be a stress test, could you hold that may. Not for nothing, Finance Minister Padoan has stressed on the idea of the rescue package, the measure would also “serve the protection of depositors”: The government hopes to be able to a part of the 20 billion for the compensation of retail investors.
The subsequent compensation of the depositors would be an obvious circumvention of the EU recovery and resolution Directive. Padoan negotiated for weeks with the EU Commission to get the green light for a solution, with which the small investors, who had not been informed by the Bank about the risks of their investment, is protected. Theoretically there is a possibility that the guidelines would be with the new EU-compatible: If a Bank is “systemically important” and is still solvent, then the state may proceed with a so-called “precautionary recapitalisation”, without the creditors lose everything. The need to explain to the government but to the EU.