A closer look at Banca Monte dei Paschi: Living on the edge. CEPS Policy Brief No. 345, July 2016

De Groen, Willem Pieter (2016) A closer look at Banca Monte dei Paschi: Living on the edge. CEPS Policy Brief No. 345, July 2016. [Policy Paper]

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Abstract

The Italian bank Monte dei Paschi di Siena (MPS) is expected to fail the 2016 EU-wide stress test conducted by the European Banking Authority (EBA), whose results are due to be presented Friday, 29 July 2016. When taking a closer look at the bank, it becomes apparent that the bank has so far failed or nearly failed all the EU-wide supervisory exercises that have been undertaken in the past six years. Almost every time the bank has managed to raise just enough capital, including public funds already contributed twice by the Italian government, to close the capital shortfalls or meet the threshold. This allowed the bank to live on the edge, which is costly to society. Supervisory, resolution and competition authorities should therefore discourage banks from following in MPS’ path of doing the minimum required, by imposing extensive recapitalisation requirements with a proper resolution.

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