The liquidation of “too big to fail” banks ensures that large investors will get paid while average Joes will be stiffed with the bill.
Taxpayers, will again have to the bailout insolvent banks. Otherwise, central bankers say, the risk of a systemic collapse would be very real.
What they do not say is that what is at stake is their credibility, reputation and that of the rules they created to impose schemes that resulted precisely in today’s financial instability.
The European Commission defended yesterday the liquidation of Veneto Banca and Popolare of Vicenza.
The two Italian banks closed with public money in spite of the existence of the so-called European Banking Union, the Community Directives, which should respond for cases like those cited above.
Just as it happened in Spain and Greece, central bankers have loaded the losses on shareholders, bondholders and taxpayers.
“The rules applied in this case are completely in line with the legal framework that was put in place after the crisis,” said a spokeswoman for the Commission, who referred to the “general interest” as the main argument.
Italy will inject € 17 billion of taxpayers money, to rescue “higher-quality debt” from these banks. Please understand that “high quality debt” is nothing else that monies invested irresponsibly.
Brussels approved the rescue over the weekend, arguing that such State aid does not distort competition as these two banks disappear.
But it is Intesa, one of the large Italian bank, that will receive the greatest injection in its balance sheets.
With the new European resolution authorities decreed that these two banks can be liquidated because they are not systemic, that is, their bankruptcy does not affect the whole European banking systems as their assets total € 55 billion.
According to the agreement, the liquidation must be done under Italian law: they apply the rules of the State to save the bondholders from burning arguing that these two entities are systemic, but only for the Veneto region.
The European Commission’s Competition Commissioner, Magrethe Vestager swallowed that explanation, accepted State aid and prayed for peace and glory.
Meanwhile, analysts and the European Parliament opposed the rescue yesterday.
In summary, experts and MPs come to say that the banking union is a scam: the taxpayer continues to save banks.
There are no transnational operations and that causes many more closures of branches and dismissals: Intesa will end up with the closing of 60% of the offices and the dismissal of 40% of the staff of the two Veneto region entities.
“Anything will be done to avoid the losses to the debt, and that generates a system of perverse incentives: you have to have national champions like Santander or Intesa to swallow the problem, conveniently aided, when necessary “, explained financial sources.
Against those arguments, Brussels has been justifying for two days that Italy complies with the rules. “Completely,” they stress.