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5th Aug 2021

Italy criticises ECB over bank bailout

  • EU-wide stress tests over the summer revealed Monte dei Paschi di Siena to be weakest (Photo: EUobserver)

The European Central Bank (ECB) needs to be more clear about its calculation that ailing bank Monte dei Paschi di Siena needs more than €8 billion pumped into it, Italy's economy minister Pier Carlo Padoan says.

Padoan's comments on Thursday (29 December) at a forum organised by Financial daily Sole-24 Ore followed revelations earlier this week that the country's third-largest bank had a far higher capital shortfall than previously thought.

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The ECB, which is also the eurozone's banking supervisor, said on Monday that Monte dei Paschi di Siena needed some €8.8 billion to make sure it could survive in the event of a financial crisis.

The bank had initially estimated it would need €5 billion.

"It would have been useful, if not kind, to have a bit more information from the ECB about the criteria that led to this assessment," Padoan told the newspaper.

But Padoan also noted that the ECB's evaluation "cannot be challenged" and had recommended sanctions against the bank managers.

Padoan's comments appear to depart from earlier statements by Italian officials who had dismissed the ECB increase given Italy's recent €20 billion bailout fund.

'Rapid deterioration'

The world's oldest bank has struggled to shore up its capital following claims that its balance sheet includes €30 billion in bad loans. People have been withdrawing money, further weakening the bank following a failed attempt to raise €5 billion from private investors.

The ECB warned the bank's liquidity was spiralling out of control in what it described as "rapid deterioration" over the past month.

The bank's fragility was further highlighted over the summer when EU-wide stress tests revealed it to be Europe's weakest.

The tests, conducted by the European Banking Authority, showed that Monte dei Paschi di Siena would not survive an economic or financial market crisis.

Italy's state treasury won't have to cover the entire bill as the bank's private investors will have to suffer losses first, in line with EU rules. But the hit for taxpayers is still expected to be over €6 billion, according to the Bank of Italy, reports Reuters.

The EU commission on Thursday said it had authorised Italy's support for the bank in line with EU state aid rules.

"This means that regardless of circumstances banks will have no difficulties in funding their operations and deposit access will be ensured at all times," said an EU commission spokesperson.

The commission had also, separately, decided to authorise the extension of the Italian bank guarantee scheme until next June. The scheme covers liquidity support measures in favour of solvent credit institutions in Italy for use in case of need.

"Such schemes are currently in place in several member states," said an EU commission spokesperson.

Italy steps in with €20bn to save failing bank

The Italian state is rescuing the world's oldest bank with the help of a €20bn fund and vows to protect small savers. The European Commission says it is in touch with Italy about how to proceed.

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Eurozone bank needs more scrutiny, says NGO

Transparency International says eurozone's central bank is not subject to "appropriate democratic scrutiny" and should have no say on EU bailout projects.

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