Finance: Research, Policy and Anecdotes

MPS: Europe’s banking troubles crystallised in one bank

La Repubblica Firenze has an agreement with EUI to publish op-eds by academics and this week it was my turn – to make the direct link to my new host region, I chose the never-ending saga of Monte dei Paschi di Siena, which for me is a mirror of where Europe’s banks, regulators and politicians have gone wrong over the past 20 years: a rapid expansion before 2008, followed by mounting losses, hidden from auditors and regulators; a government bail-out in 2013, which did not help turn things around and nationalisation in 2017. At the core of this drawn-out failure of MPS has been too close a relationship between politicians and bankers, which has prevented early and effective intervention.

 

What I see as critical mistake and would call the original sin of the banking union was the decision in 2014 to apply the new regulatory framework to a banking system still working through the aftermath of the Global Financial and Eurodebt crises and – in the case of Italy – a triple-dip recession rather than to address legacy losses and force an effective restructuring of European banking.  Yes, supervision has been Europeanised, but banks’ connections with local and national politicians have kept the resolution effectively on the national level and bailouts are still the default solution. And while there is no immediate risk that the sovereign-bank deadly embrace will emerge again in the near future, the risk has not been eliminated because of these national and taxpayer supported resolutions.

 

To link back to MPS and my new host region – as there are concerns about the demise of MPS: Tuscany needs strong banks that serve the local economy and society. However, times have changed and the focus has to move from trying to conserve what is no longer sustainable to building effective and stable finance. Europe should not be seen as the enemy that robs Tuscany of its banks, but as an opportunity to create sustainable provision of financial services.