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Two Italian Banks Fail: Bail-In Rules Changed to Protect ECB and Political Class from Losses?

Courtesy of Mish.

On Friday the ECB Shut Down Venice-based Veneto Banca and Banca Popolare di Vicenza as failed or failing banks.

The bailout cost is purportedly €5.2 billion ($5.8 billion), but costs nearly always exceed initial projections.

Under the announcement, senior bondholders and depositors will be protected.

The European Central Bank said Banco Popular was “failing or likely to fail” due to its dwindling cash reserves. The good assets of Banca Popolare di Vicenza and Veneto Banca will be taken on by Intesa Sanpaolo. Economy Minister Pier Carlo Padoan said Rome would also offer guarantees of up to 12bn euros for potential losses from bad and risky loans.

Let’s discard the “likely to fail” category. Those banks are insolvent and have been walking zombies for years. The entire Italian banking system is in a zombified state.

I believe those loan guarantees are illegal under ECB rules but the ECB may simply look away. The price tag now is another €12 billion.

Rush to Keep the Banks Open

Bloomberg reports Italy Rushes to Approve Decree Law to Keep Two Veneto Banks Open.

Italy is rushing to approve emergency rules outlining liquidation procedures for two failed banks in the northern Veneto region in time for them to open on Monday.

The government is set on Sunday to approve a decree law setting up rules that would let Intesa Sanpaolo SpA buy some assets of Banca Popolare di Vicenza SpA and Veneto Banca SpA at a token price and determine the state intervention needed to avoid losses for senior bondholders.

The Finance Ministry has said all measures would be taken to ensure that senior creditors and depositors are protected in their liquidation under the national insolvency law, and customers would see no interruption in service. The Bank of Italy is expected to appoint administrators to liquidate the bad assets, while Intesa may formalize its purchase of good assets by Monday, according to local press reports. State intervention may cost as much as 7 billion euros ($7.8 billion), Corriere della Sera reported.

The government tried for months to rescue the two banks, but its efforts ended on Friday when the ECB turned the matter over to the Single Resolution Board in Brussels for disposal. The SRB, in turn, passed the issue to Italian authorities after concluding there was no public interest in resolving them under European Union law, a process that would have exposed senior debt holders to losses.

Brave New World of Bail-Ins on Display


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