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15 September 2017
In recent years, the Italian banking sector has suffered from severe difficulties, partly due to the reduction in industrial production and partly because of organisational weaknesses, fraudulent management and imprudent credit allocation policies. The Ministry of Economy and Finance and the Bank of Italy commenced a broad and complex sector restructuring, which culminated in a cooperative credit reform that will strengthen finances, promote consolidation and improve resilience to external shocks. This is the background to:
Under Article 18(1)(a) of the EU Single Resolution Mechanism Regulation (806/2014), the European Central Bank (ECB) decided that PBVI and VB were "failing or likely to fail" because of their repeated breaches of the regulatory capital requirements. As a result, the Italian government considered that the conditions to place the two banks in administrative compulsory liquidation had been met. Under EU regulations, a bank that is failing is wound up using ordinary insolvency proceedings in line with the prevailing national law, unless the single resolution board (SRB) considers that there is a public interest in subjecting the intermediary to a resolution scheme. This ruling applies if ordinary insolvency proceedings "might jeopardise financial stability, interrupt the provision of critical functions, and affect the protection of depositors" (see the EU Banking Recovery and Resolution Directive (2014/59/EU)). In this case, the SRB confirmed the ECB assessment and decided that a resolution scheme was not in the public interest, as the banks' operations were not sufficiently extensive and were concentrated only in some areas of the country.
The Ministry of Economy and Finance considered the banking sector's traditional measures for an administrative compulsory liquidation to be inadequate and insufficient. Therefore, on June 25 2017, following the Bank of Italy's suggestion, it issued Decree-Law 99 (published on the same date in the Official Gazette 146 and converted with amendments by Law 121 of July 31 2017, published in the Official Gazette 184 on August 8 2017), which placed the banks into administrative compulsory liquidation and introduced instruments to manage their financial crisis. This measure was aimed, in particular, at avoiding a so-called 'atomistic' liquidation (ie, the gradual sale of the individual business assets which would have led to the destruction of the business value and imposed the sudden cessation of existing credit relationships). In such a case, serious national economic problems would arise, including:
The decree-law set out:
The business assets sold did not include the bad loans present in the two banks' portfolios, which will be transferred to Società di Gestione delle Attività (SGA). SGA is owned by the Ministry of Economy and Finance and will carry out the management and recovery activities.
In a July 10 2017 decision, the Italian Antitrust Authority confirmed that Intesa Sanpaolo's acquisition of the two banks did not establish or strengthen a dominant market position (under Article 6(1) of Law 287/90), which could eliminate or reduce competition.
The European Commission has ruled on the compatibility of these measures with EU legislation and stated that the support measures are to be considered an application of EU law on state aid for banking (particularly the July 30 2013 banking sector communication) because:
For further information on this topic please contact PierDanilo Beltrami at Lombardi Segni e Associati by telephone (+39 02 896 221) or email (firstname.lastname@example.org). The Lombardi Segni e Associati website can be accessed at www.lsalaw.it.
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