The EuroZone (EZ) is meant to have a Banking Union in place that is meant to supervise banks and deal with bank bankruptcies so that taxpayers are not on the hook for the losses.
Up until now, senior bond holders and depositors have been protected by explicit or implicit government guarantees, and have not lost their savings and investments when the banks are closed down or supported by government (taxpayers’) funding to kick-start them again - reports finnishnews.
The Banking Union was meant to stop all this with new regulations. Really big banks in the Eurozone are more closely regulated for capital adequacy, and a new way of closing down poorly managed banks was put in place. However the amount of cash that banks had to put in place to deal with the extra costs of supervision and closing down (resolution) was tiny compared to the huge size of their balance sheets. Only fools really believe that these are adequate if and when the next banking crisis comes along.
Now 2 medium sized banks in northern Italy (both banks are among the 15 largest banks in Italy) have been at the centre of a long and well known history of fraudulent and rotten banking practices. The worst example has been the practice of granting ordinary housing loans on condition that an extra loan of up to 20% was taken and invested in shares of the same bank, with the share price being fixed once a year by the bank’s board. Neither bank was on the stock exchange, so naturally the share price was way above its true market value!
This was a common practice that any bank supervisor should have seen, and probably did but did not act. Both banks have been supervised by the ECB since 2014.
Now, the European Central Bank (ECB) and the EU have agreed that the Italian Government is allowed to take on the losses of the 2 banks at the taxpayers’ expense. The ECB and the EU have accepted some arguments from the Italian government that this will avoid a regional disaster, something which is difficult to believe because this is one of the wealthiest regions of Italy!
This decision to deal with both banks this way contravenes what voters have been told about the Banking Union legislation. Basically it means that taxpayers in Finland, a EuroZone member, are also on the hook for bank losses again….
Can we please have some comments from the Prime Minister and the Minister of Finance on this question. Do they support the decisions of the ECB and the EU with regard to Italy, and are we now living in a dual universe with alternative truths with regard to banking risks?
We have 2 banks here and lots of small ones and they are all pretty much “Nordic regional entities”, just like the two in Italy!
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