Germany called on the European Union to make sure new rules for too-big-to-fail banks are enforced, expressing concern that Italy's bailout plan for Banca Monte dei Paschi di Siena SpA would set a bad example, Bloomberg News reported Jan. 26, citing "officials familiar with internal discussions."
In 2014, the EU introduced new rules for failing banks, stating that big lenders would be restructured and recapitalized under a separate resolution procedure in which losses are shouldered by owners and creditors.
Germany objects to the Italian government's plan to set aside €2 billion to compensate 40,000 individual holders of Monte dei Paschi's Tier 2 subordinated bonds. It is also concerned that the lender's stack of bad debt comprises roughly a third of its loan portfolio, Bloomberg noted. It contends that losses associated with selling these soured loans have already been incurred, making them ineligible for state aid.
Italy is preparing to inject €6.6 billion to recapitalize Monte dei Paschi as part of a €20 billion rescue fund for the country's beleaguered banks.