Banking Crises in Italy: An Application and Evaluation of the European Framework (Palgrave Studies in Financial Instability and Banking Crisis Regulation)

This book offers the first original study on banking crises management in Italy from 2014 to 2020 with a comprehensive overview of the resolution tools used. In Italy, the issue of banking crises is now the focus of attention, not only as a result of the cycle of crises that occurred in the years 2014-2020 but also because of the banking reform carried out in Europe with the directives on bank recovery and resolution and the implementation of the Single Resolution Mechanism and the Single Resolution Fund within the framework of the Banking Union. The Italian banking crises have been managed by applying the new European regulatory framework; in this sense they constitute a significant test to assess its effectiveness and coherence. This book, divided into two parts, makes an initial assessment of the crisis situations and the application of the new rules, and offers an initial evaluation of their functioning. In the first part, an in-depth examination is made of the various cases of crisis, following a methodology of classification by type of solution and instruments adopted. The second part is dedicated to lessons learned and open issues. In detail, the most sensitive issues of the current debate are addressed, relating to the improvement of the institutional set-up and the rules for crisis management, the harmonization of insolvency rules in Europe, the funding of resolution, public intervention and, finally, the role of deposit guarantee systems. An articulated and complex picture emerges with various areas for improvement and policy indications, offering a framework that will be of interest to scholars, researchers, professors, students and practitioners of banking and banking regulation. Preamble Contents List of Figures 1 Introduction Part I The Management of Banking Crises in Italy: Old and New Solutions in a Framework of Increasing Complexity 2 The Overall Picture. System Weaknesses and Individual Problems 1 Background 2 The Global Financial Crisis and the Crisis in Europe 3 The Italian Banking Crises: Main Features 4 The Management of the Italian Banking Crises Before and After the European Reform 4.1 The Previous Regulatory and Operational Framework 4.2 New Rules of the Game: The New European Regulatory Framework 4.3 Changes in the Banking Market and in Operators’ Strategies 5 Vulnerabilities of the Italian Banking System 6 The Extent of the Crises 7 Instruments 8 Who Paid? 3 The Tercas Case: A Watershed 1 Banca Tercas: General Background Information 2 The Regulatory Framework 3 State Aid Rules: The EU Commission Decision 4 The Creation of the Voluntary Scheme and the Intervention 5 The Appeal Brought by Italy and the Ruling of the EU General Court 5.1 The Commission’s Appeal 5.2 The Court of Justice Decision 4 The first application of the BRRD: the case of the four banks in resolution 1 The First Project: The FITD’s Intervention 2 The Commission’s Decision 3 The Resolution of the Four Banks 4 The Sale of the Bridge Banks 5 Two Types of Public Intervention: Orderly Liquidation and Precautionary Recapitalisation 1 The Two Veneto Banks: Orderly Liquidation 1.1 The Banks: Background and Key Figures 1.2 The Causes of the Crisis and the Attempts to Resolve It 1.3 The Orderly Liquidation of the Two Banks 1.4 Liquidation Support Measures 1.5 Some Considerations on the Two Veneto Banks’ Case 2 Monte Dei Paschi Di Siena: Precautionary Recapitalisation. A Public Intervention Measure not Originating from Failing or Likely to Fail 2.1 The Rules on Precautionary Recapitalisation in the Bank Recovery and Resolution Directive (BRRD) 2.2 The Recourse to Precautionary Recapitalisation for MPS 2.3 The Case of MPS and the Technical Situation 2.4 The Results of the Stress Test and the Search for a Solution 2.5 The Sale of the Bank on the Market 6 Establishment of the FITD’s Voluntary Scheme and Interventions Carried Out 1 Rationale, Structure and Functioning of the Voluntary Scheme 2 Five Interventions in Case of Crisis 2.1 First Intervention in Favour of Banca Tercas Following the Commission Decision 2.2 Second Intervention: Caricesena, Carim and Carismi 2.2.1 The Case of Cassa di Risparmio di Cesena 2.2.2 Carim and Carismi 2.3 Banca Carige. Phase 1 7 The FITD’s Preventive and Alternative Measures 1 The FITD’s Mandate and Interventions 2 The FITD’s Alternative Interventions 2.1 The Case of the Banca Popolare Delle Province Calabre: Compulsory Administrative Liquidation with the Support of the FITD 2.2 The Case of Banca Base: The Compulsory Administrative Liquidation with the Support of FITD 3 The FITD’s Preventive Measures 3.1 Phase 2 Intervention in Favour of Banca Carige 3.2 Phase 3 Intervention in Favour of Banca Carige 3.3 Banca del Fucino 3.4 Banca Popolare di Bari. A Case of Nationalisation Achieved with the Use of Private Resources 3.4.1 The Bank: General Information and Main Data 3.4.2 The Special Administration and the First FITD Intervention to Cover the Capital Deficit on 31.12.2019 3.4.3 The Final Assessment of the bank’s Situation and Business Plan. The Intervention of the FITD and MCC Part II Lessons Learned and the (Many) Open Questions 8 How to Manage the Crises? 1 Some Preliminary Considerations 2 The Model: Competencies, Procedures and Instruments 2.1 The Institutional Framework 2.2 Complexity and the Need for a Wider Toolkit 2.3 ‘Public Interest’ Between Resolution and Liquidation: A Dichotomy to Be Reconsidered? 2.4 Public Interest and General Interest 9 The Debate on the Harmonisation of the Insolvency Framework in Europe 1 What Is a Harmonised Insolvency Framework? 2 The Starting Point. Insolvency Regimes in EU Countries 3 The ‘No Creditor Worse Off’ Principle 4 A European Liquidation Regime. The Adoption of the ‘FDIC’ Model 10 Who Gets the Bill in a Crisis? 1 The Contribution of Shareholders and Creditors 1.1 Is Bail-In Feasible? 1.2 Reasons for the Failure to Apply Bail-In 2 External Financing of the Crisis 2.1 Solvency Funding 2.2 Liquidity Funding. The Need for New Tools to Support Liquidity in Resolution and Pre-Resolution 11 Public Intervention in Crises 1 The Role of Public Intervention 2 Public Intervention During the Covid-19 Crisis 3 What Strategies for Putting Nationalised Banks Back on the Market? 12 Deposit Guarantee Schemes: Role and Functioning in Banking Crises 1 Is the Legal Nature of DGSs Relevant? Or just Their Mandate? 2 Institutional Mandates and Operational Scope 2.1 The State Aid Rules 2.2 Least Cost and Depositor Preference Application Issues 3 The Funding of Deposit Guarantee Schemes Must Be Made More Credible. The Lack of Emergency Financing 4 Failure to Implement the European Deposit Insurance Scheme (EDIS) 13 Conclusion: A Long List of Open Issues Bibliography Index