Italy’s third biggest bank is facing a crisis. It has put forward a $ 5.3 billion (5 billion euro) recapitalisation plan that was approved by shareholders but received skeptically by investors.
Paolo Gentiloni this week won the backing of the Italian Senate in a confidence vote, allowing him to step in as a caretaker prime minister.
What is Monte dei Paschi di Siena?
Banca Monte dei Paschi di Siena (MPS) is Italy’s 3rd largest bank (according to research from Ricerche e Studi, based on 2014 figures). Established in 1472, MPS is also the oldest surviving bank in the world, as listed in the Handbook on the History of European Banks.
The centuries-old bank that has outlived many dynasties and kingdoms is facing trouble after five hundred years of existence.
The EBA carries out the tests to see whether EU banks are resilient to “adverse economic developments” and to locate weaknesses.
What is the root cause of the bank’s crisis?
“You know, Italy cannot fail - it’s too big to fail.”
Alex Barker, Brussels bureau chief for the Financial Times, has pointed out three options Renzi’s successor will have to consider: they can play for time, bail out MPS without harming retailers who have invested in the bank, or seek help from the European Stability Mechanism, an EU agency that would provide bailout funds to MPS and other troubled Italian banks.
“In the end the bank will probably be sold off to some hungry American financial holding company such as JPMorgan, or perhaps to the Qatar Investment Authority,” Boldizzoni predicted. “They will be the real beneficiaries of taxpayers’ money.”
Laterza said that if the Five Star Movement, a party that combines “a mix of far-right elements with so called more progressive elements but still with very strong xenophobic and nationalistic undertones” were to come into power, then Italy’s policies, including those for banking and finance, could alter significantly.
Laterza added that for that to happen, however, the “huge bureaucratic mess” stemming from conflicting electoral laws for the two houses would have to be sorted out first, ahead of elections that he said would have to be held by mid-2018.
How will the MPS crisis affect ordinary Italian citizens?
“If a government rescues a bank, then various investors have to be bailed in. They take losses. That starts with shareholders, of course,” said Simon Long, finance editor of The Economist, in a recent Money Talks episode, discussing a 2013 EU law that would affect efforts to help MPS.
“Then next up, junior debt holders – that in Italy is a bit of a problem because there are a lot of junior debt holders in Italian banks who are customers of the banks,” Long said.
“Local people, retailers who have been encouraged to buy bonds in the bank a lot of them thought were as safe as deposits. They might stand to lose – that’s a problem.”
Boldizzoni, however, wrote that while a “proper bailout” is prevented by EU legislation, this “does not rule out some form of state intervention justified by the need to protect savers.”
How will Italy’s crisis affect the European Union?
Caselli said the crisis in Italy would not affect the EU, and that the system, with its intricate mechanisms, keeps on working.