With the world still napping in a post-Christmas daze, the ECB surprised Italian bank watchers on December 26 when it advised the insolvent, and nationalized, Monte dei Paschi that its capital shortfall had increased by 76% from €5 billion to €8.8 billion as a result of a deposit flight, aka “bank run”, that had accelerated and led to a deterioration in the bank’s liquidity.
The week before, Monte Paschi admitted, it had already suffered roughly €14 billion in deposit outflows, or 11%, in the first nine months of the year as shown in the chart below.
And then, out of nowhere, the the ECB surprised Italian bank watchers on December 26 that Monte Paschi “was solvent but signaled the bank’s liquidity position had rapidly deteriorated between the end of November and December 21.“
Needless to say, Italy was furious at the ECB for unexpectedly admitting that the country’s banks are not only in a worse shape than presented at a time when the government requested the parliament’s approval to issue an additional €20 billion in new public debt to fund bank nationalizations, but that the bank run gripping at least one of Italy’s banks was substantially more aggressive than portrayed.
The anger culminated overnight when in unusually critical comments of the ECB, Italy’s economy minister Pier Carlo Padoan said in a newspaper interview the central bank’s new capital target was the result of a “very rigid stance” in its assessment of the bank’s risk profile. He bashed Draghi saying, that the European Central Bank “should have explained more clearly why it nearly doubled its estimated capital shortfall for the ailing Monte dei Paschi di Siena (BMPS.MI) bank, which is being bailed out by the state.“
“It would have been useful, if not kind, to have a bit more information from the ECB about the criteria that led to this assessment,” Padoan told financial daily Il Sole 24 Ore.
