The collapse of four regional Italian banks (Banca Etruria, CariChieti, Banca Marche and Carife) is starting to take on alarming proportions. All the same, truth is they cater altogether to a million private clients, 200,000 small and medium businesses, representing 12 billion euro in deposits, 25 billion euro in financing and 7,000 jobs.
Rome has had to put in place a 3.6 billion euro recovery plan supplied by the country’s larger banks. Clients’ checking accounts are kept safe, thanks to this plan. However, some of said clients had bought bonds issued by those banks, and these bonds are now worthless. Roughly ten thousand clients have to forgo a total of 800 million euro! Following protests and, sadly, one suicide, the government has agreed to put in 100 million euro, which will only cover a small part of the losses.
But above all, what is most revealing in this case is the haste with which the Italian government is trying to act, because it absolutely wishes to avoid the implementation of the BRRD, coming January 1st, 2016, in Italy and all of Europe. Because this directive, as we’ve already explained, calls for bailing out a failed bank by using its clients’ checking accounts. The scandal would then be of a much greater magnitude, since it would affect a million private clients and 200,000 businesses. They would have to suffer the loss of parts of their savings and this would cause a bank run that could threaten all of the Italian banks. We understand the eagerness of Matteo Renzi, the head of government.
As a matter of fact, putting aside the fact that this directive legalises the looting of depositors’ savings, as we’ve said before, one could consider, at least, that the BRRD could quickly solve a banking crisis – in a bloody fashion but, nevertheless, in an efficient manner. In reality, this is true only if all of a country’s banks are going under at the same time (as in Cyprus in 2013). But the case of Italy is showing another scenario: when one or several regional banks (or a large systemic bank) go bust, implementing the BRRD leads to the spoliation of hundreds of thousands of clients, which provokes a shock throughout the entire country and starts a bank run in the other banks, which, in turn, puts the whole financial system in jeopardy. This is what Matteo Renzi is scared of, and it explains his eagerness to fix the problem before December 31st.
To no avail! This BRRD isn’t even effective – it might even amplify a local crisis and turn it into a national one and, thus, a European one. The spoliation of savers is turning into a fragmentation bomb – the monster is loose from its creators. This time Italy may be able to fix the problem before the end of the year but, starting January 1st, we will witness another explosive risk appear in the European banking landscape: a bank failure causes the spoliation of its clients, which produces a national scandal and a panic movement, a bank run and, finally, the de-stabilisation of the national financial system, and thus, the European one. Kudos to the European Commission!
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Philippe Herlin Finance Researcher / Member of the Goldbroker Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.