The difficulties that the government is facing in outlining a support measure for Monte dei Paschi di Siena that satisfies the requests of the European Commission reflect the problems of intersection between existing and new regulations, posed by the introduction of the new European legislation on the crisis banking. Problems that give rise to interpretative uncertainties that Italy risks paying the price for. This is particularly the case with regard to the relationship between the new rules on the resolution of failing banks and the legislation on state aid, of which the Commission appears to give an arbitrarily broad interpretation.
The problem has already arisen in relation to the interventions of the Deposit Guarantee Funds, and concerns the possibility for these institutions to intervene in support of banks in difficulty, in order to avoid the start of the "resolution" process. The directive of 2014 harmonizing the operation of deposit guarantee funds (the DGS directive) and therefore coeval with the "resolution" directive, in fact provides for the possibility of such interventions.
However, the European Commission interprets the interventions of these funds as the use of public resources guided by the state and therefore as state aid: and therefore requires that they be accompanied by a significant participation of private individuals in the adjustment. But the consequences of the Commission's attitude are even wider: the resolution directive makes the disbursement of state aid to a bank subject to the initiation of a resolution process and therefore to the bail-in of creditors: in fact the setting of the Commission has thwarted the provisions of the SGD legislation.
This result is curious and worrying: curious, because the approach of the Commission represents a discretionary interpretation of an administrative Authority, whose assessments, even when incorporated in Communications, do not have the value of a European law, as the 'Lawyer Whal of the European Court of Justice, in relation to the burden sharing provision contained in the Communication on State aid of 2013; the Member States are not bound by this provision when setting up aid plans. Worrying, because this approach of the administrative authority is blocking the possibilities offered by the rules to intervene in a non-traumatic way, when there is no need for trauma.
The question now comes up again with drama regarding the support plan for Monte dei Paschi di Siena on which the Government is working. It should be clarified that, despite the legacies of the past, MPS is not in trouble. The bank has undergone a restructuring process during which the shareholders have already lost almost all of their investment: the shares which in May 2015 were priced above 9 euros are now hovering below thirty cents.
However, in the last year its capital position has greatly improved: the capital ratios meet the Basel 3 ratios. The credit disposal plan, under discussion with the ECB, however requires a capital increase of around 2 billion Euros . And implementing such an increase without some form of public intervention appears highly problematic, at a time when the banking sector across Europe is suffering, following the uncertainties of the macroeconomic environment and the post-Brexit shock.
In principle, the European rules would allow a margin of flexibility in this regard: the Resolution directive, in art. 32. 4, letter d specifies that if the bank is not failing, extraordinary public intervention is permitted, without activating a resolution procedure, "in order to avoid or remedy a serious disturbance in the economy of a Member State and preserve financial stability".
In particular, this intervention may take the form of “an injection of own funds or the purchase of equity instruments at prices and conditions that do not confer an advantage on the institution.” The disruptions following Brexit, everywhere and particularly in Italy, should allow the situation to be defined as one of "serious disruption" and a risk to financial stability.
An intervention without resolution and without consequent bail-in is therefore permitted by the grim directive. The point is therefore the prices and conditions, which must be those of the market, both for a capital increase and for an issue of convertible bonds. The interpretation of the intervention as not bringing an advantage, and therefore of the market, would be strengthened if private subjects (other banks, insurance companies, etc.) participated in the underwriting and if the state intervention was admittedly temporary, to underline its extraordinary nature.
However, even in this case a bloodless solution seems prevented by the intersection with the interpretation of the Commission: which believes that in any case even an intervention at market conditions must be submitted to its approval; and yet in this case there can be no aid: for there to be state aid, the condition is not only that the resources are public, but that the intervention is selective, that is, it gives rise to an advantage for the recipient: hypothesis which is explicitly excluded if the conditions are those of the market.
In essence, the Commission's claim to review an intervention pursuant to art. 32 appears arbitrary because there would be no aid in a public intervention at market conditions. Furthermore, the Commission does not even have the competence to carry out an assessment in this sense, since the resolution authority should possibly be involved. The Government is therefore right to resist.
Of course, the Commission has the upper hand: the only solution would be to carry out the intervention and then directly contest any initiative by the Commission before the Court of Justice, which clarifies the limits of the Commission's interpretation and powers . A risky road. The alternative, however, is that an intervention conditional on burden sharing, as implied by the Commission's interpretative practice regarding aid, in a major and systemic bank such as the MPS has unpredictable consequences. A bit like Brexit.
