Posted by on June 2, 2017 1:13 am
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Categories: Atlante Banca Monte dei Paschi di Siena Banco Popolare bank Bank Run Banking in Italy Business Economy Economy of Italy European Central Bank European Commission European Union Eurozone Financial services Intesa Sanpaolo Intesa Sanpaolo Group Italian government italy Monte Paschi UniCredit

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Whereas most bank clients accepted a bail-in as one of the risks associated with depositing cash on a bank account, Italy doesn’t seem to be too sure about forcing its banks to do so.

We all know the never-ending issues related to Banca Monte Dei Paschi, but that bank wasn’t Italy’s only problem. Two smaller banks, Banco Popolare di Vicenza and Vento Banca also need to be rescued. Although these banks are definitely smaller than Monte Paschi, and wouldn’t have a huge impact on the international banking system, it definitely is an issue which has to be solved.

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According to the European Commission, both banks would need to find a 1 billion Euro cash injection from the private markets before the Italian government would be allowed to even think about providing additional state aid, but as you can imagine, there isn’t a lot of risk capital available for two failing banks.

The main question now is whether or not the state-supported Atlante-fund could be considered to be a private cash injection. If that would be the case, the state fund could inject the required billion Euro, and then let the Italian government deal with the mess. But Atlante has already ‘invested’ 3.4B EUR (investing might be a bad choice of words, as we don’t think putting money in a failing bank is an investment but rather a ‘speculation’) in both Venetian banks, and might be unwilling to throw more cash at it. Additionally, the larger banks in the country (Intesa SanPaolo and Unicredit) have publicy confirmed they aren’t willing to throw (more) good money at the failing banks, so they won’t be part of any solution.

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Not only is there a very thin line between considering a state-supported investment vehicle to be ‘private’ money and thus meeting the requirement of the European Commission, it’s also uncertain what the punishment for Italy would be if it wouldn’t apply the European rules to this situation.

After all, the Italian government seems to be radically against a bail-in of debt holders and account holders, even though this is the preferred (read: ‘mandatory’) solution of the European politicians.  The Italian government thinks a bail-in might make things even worse, as the fears of this bail-in might spread to other banks and other institutions inside the Italian system.

A very valid assumption, but this puts Italy on collision course with the other European countries and the ECB which have been pushing the member states towards using a bail-in as a first solution. And with a capital hole of in excess of 6B EUR, there simply isn’t a clear solution for the Venetian banks. After all, who’d be willing to invest that much money in failing banks?

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The 6.4B EUR might actually be just the starting point. Italians aren’t stupid, and several deposit holders have already started to empty their accounts. We aren’t talking about a ‘pure’ bank run, but the amount of money which is needed now might be just a very temporary solution. If more deposit holders withdraw cash, more money will be needed to protect the capital ratios of the two banks.

So whilst we acknowledge there’s no easy solution, something will have to be done. And if Italy refuses to apply the bail-in principles, the European Union and the Eurozone might have bigger issues than you’d think…

A new fundamental crisis seems to be just around the corner!

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