Italian bank Monte dei Paschi di Siena has once again been plunged into crisis, after the European Central Bank upped the cost of mending its finances to 8.8 billion euros.
Monte dei Paschi has been struggling to pull together 5 billion from private investors to prevent a government bailout, but have since been told by the ECB that the expected cost to save the bank will be far higher.
“The bank has quickly started talks with the competent authorities to understand the methodologies underlying the ECB’s calculations and introduce the measures for a precautionary recapitalisation,” the bank said in a statement.
On 23rd December the Italian government approved a 20 billion euro bailout for its struggling banking sector, of which a proportion is likely to go to Monte dei Paschi to keep it afloat. However, some ECB officials are against the plan, questioning whether bailing out the bank yet again is the best decision for the country.
Jens Weidmann, the president of Germany’s Bundesbank and a member of the ECB’s governing council, told German newspaper Bild:
“For the measures planned by the Italian government the bank has to be financially healthy at its core. The money cannot be used to cover losses that are already expected. All this must be carefully examined.”
The troubled Monte dei Paschi bank, the oldest in Italy, is weighed down by billions of bad loans – sofferenze – made to customers who cannot afford to repay them.
The ability of the government to bailout the bank will depend on whether the government aid will count as a “precautionary recapitalisation” rather than a full-blown rescue. This important distinction under EU state aid law will decide the likelihood of the plan’s approval.