Italy arranged for one of the biggest bank rescues in history, with a cost of up to 17 billion euros ($19 billion) in order to wind up two failed banks in one of Italy’s wealthiest regions. However, the deal- which was approved by the European Commission- raises some questions regarding the consistency of the bank regulations in Europe.
This decision to rescue Veneto Banca SpA and Banca Popolare di Vicenza SpA includes state support for Intesa Sanpaolo SpA to obtain their good assets for a token amount. Intesa can tap about 5.2 bill. euros at first, without harming capital ratio.
This commitment boosted bank stocks in Europe with Intesa gaining, and raising questions regarding how effective European rules are and whether they can guarantee that private investors won’t share the bank bailout burden.
When the firms open for business on Monday, the two moneylenders will be divided into bad and good banks as according to PM Paolo Gentiloni. The government had to intervene as savers and depositors were at risk and their operation region is one of the most important regions for Italy’s economy and small to medium sized enterprises.
The government of Italy was trying to find a way to rescue the banks for months and without a positive result, their hard work ended on Friday when the ECB said the Veneto banks are failing and subsequently turned the issue over to the Single Resolution Board in Brussels to dispose.
The solution to let the Italian government to put the two failing banks under national insolvency law was very important in protecting senior debt for further losses. Marina Brogi, a professor of Capital Markets and International Banking at Sapienza University said that it was a very pragmatic decision and that investors should stay confident in the European banking union.
The minister of finance said that these measures will guarantee that senior depositors and creditors of these two banks would be safeguarded in the wind-down process and that they will not interrupt the service to their clients. Intesa CEO Carlo Messina ensured that all junior retail bondholders who will share the burden will be refunded completely as he confirmed that Intesa can fill the gap by providing 60 million euros for the compensation of retail subordinated bonds.