Two Italian Banks Fail: Bail-in Rules Changed to Protect ECB and Political Class from Losses?

The comments above & below is an edited and abridged synopsis of an article by Mike Shedlock

Last week the European Central Bank shut down Venice-based Veneto Banca and Banca Popolare di Vicenza as failed or failing banks. The bailout cost is around $5.8 billion, but costs nearly always exceed initial projections. Under the announcement, senior bondholders and depositors will be protected.

Two Italian Banks Fail: Bail-in Rules Changed to Protect ECB and Political Class from Losses? | BullionBuzz

Syracuse, Italy – May 14, 2017: Detail of the Fontana di Artemide by Giulio Moschetti (1909), in the Piazza Archimede, Syracuse, Italy. In the background the facade of The Bank of Sicily.

Intesa Sanpaolo will take on the good assets of the two banks. The Economy Minister said Rome would also offer guarantees of up to €12 billion for potential losses from bad and risky loans.

The banks are insolvent and have been walking zombies for years. Shedlock believes the loan guarantees are illegal under ECB rules, but the ECB may simply look away. Junior bondholders are going to be wiped out, but why should senior bondholders be protected?

The bail-in rules appear to be around €12 billion in public money guarantees. Who are the senior bondholders protected under this sweetheart deal? Shedlock doesn’t know, but he has two guesses: the Italian political class, and the ECB.

If the ECB is protecting its own portfolio of garbage Italian debt, this is exactly the kind of rule bending, no details, and no discussion activity that we could expect, and now see.

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