EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 3 August 2012   
on recapitalisation of the Banca Monte dei Paschi di Siena  
(CON/20 12/64)  
 
Introduction and legal basis  
On 26 June 2012, the Italian Government adopted Decree- Law No 871 (hereinafter the ‘Decree- Law’ ), 
which entered into force on 27 June 2012. On 27 July 2012 the European Central Bank (ECB) received a 
request from the Ministry of Econom ic Affairs  and Finance  for an opinion on t he Decree- Law. Articles 5 
to 12 of the Decree- Law regard  recapitalisation of t he Banca Monte dei Paschi di Siena (MPS).  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union  and the  third and sixth  indents of Article  2(1) of Council 
Decision  98/415/EC  of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions2, as the Decree- Law relates to the Banca d’Italia and the 
rules applicable to financial institutions insofar as they materially  influence the stability of financial 
institutions and markets . In accordance with the first sentence of Article  17.5 of the Rules of Procedure of 
the European Central Bank, the Governing Council has adopted this opinion.  
 
1.  Purpose of the Decree -Law 
1.1 To achieve the recapitali sation objectives in l ine with  the European Banking Authority 
Recommendation of 8 December 2011 (hereinafter the ‘EBA Recommendation’) , the Ministry is 
empowered to recapitalise MPS, at the latter’s request  subject to certain  cond itions . On request, the 
Ministry will subscribe to up to EUR  2 billion in new financial instruments issued by MPS, 
qualifying as regulatory capital (Core Tier 1) under  the EBA Recommendation  (hereinafter the 
‘New Financial Instruments’) . This operation wil l be conditional on a swap, consisting in the 
redemption of the outstanding bonds issued by MPS and subscribed by the Ministry under Decree-
Law No 185 of 29 November 20083, for the nominal amount of EUR 1.9 billion, while the Ministry 
will subscribe to an equal amount of further New F inancial Instruments issued by MPS4. Another 
condition for the activation of the scheme, which will be in place until December 2012, will be the 
                                                 
1  Decree- Law No 87 of 26  June 2012, Gazzetta Ufficiale della Repubblica Italiana  No 148,  27.6.2012, p. 3.  
2  OJ L 189, 3.7.1998, p.  42.  
3  See ECB Opinions CON/2008/58 and CON/2008/65. All ECB Opinions and documents are available on the ECB’s 
website at www.ecb.europa.eu.  
4  The total a mount of New Financial Instrument s issued by MPS would be up to EUR 3.9 billion.  
ECB -PUBLIC 
2 adoption by the European Commission of a decision confirming that  the Decree -Law is compatible 
with the Union  framework f or State aid  measures.  
1.2 Under  the scheme, MPS will send a request w ith a restructuring plan, to the Ministry and the Banca 
d’Italia at least 30 days prior to the plann ed date f or the subscription. If Banca d’Itali a gives a 
positive assessment w ithin 15 days from receipt of the request, the Government will carry out the 
recapitalisation  on the basis  of an ad hoc decree .  
1.3 The New Financial Instruments issued by MPS wi ll not carry voting  rights and may be conve rted 
into ordinary shares at  its request . MPS will have the right to repayment or redemption, s ubject to  
authoris ation  by the Banca  d’Italia, having regard to the financial position and solvency of the 
issuer and banking group. Payment of interest on the New Financial Instruments will depend on the 
availability of distributable profits : if interest is not paid, due to the absence or inadequacy of 
distributable profits, the issuer will allocate newly issued ordinary shares to the Ministry for a share 
of net equ ity corresponding to the amount of the unpaid coupon.   
1.4 The Decree- Law also envisages the following as possible resources to fund the recapitalisation: 
(a) linear reduction in the budget allocations ; (b) reduction of individual legislative expenditure 
authorisations ; (c) temporary us e of cash in special accounts with a corresponding reduction in the 
respective expenditure authorisations; (d) issuance of Government bonds.  
1.5 The Ministry, after consulting the Banca d’Italia, will issue a decree implement ing th e Decree- Law 
and adopting a prospectus for the New Financia l Instruments. The prospectus wi ll govern interest 
payments , redemption, repayment and conversion, as well as any other element needed to manage 
the phases following subscription to the New F inancial Instruments. 
 
2. The appropriate time to consult the ECB  
In the Italian legal system, the adoption of a decree- law is part of a two -phase urgent legislative 
procedure. In the first phase , the Government adopts the  decree- law which immediately enters into force 
and takes effect, for a limited period of 60 days, on publication in the Gazzetta Ufficiale . In the second 
phase, the Government submits the Decree- Law to the Parliament, on the same day of its adoption, for 
conversion into a law within the 60- day period. P aragraph 2 of Opinion CON/2012/20 already noted that 
decree- laws enter into force on adoption by the Government , and that therefore consultation should take 
place before adoption. Consulting the ECB after the submission of a  decree -law to Parliament is not 
sufficient to comply with the consultation obligation and the ECB draw s the Ministry’s attention to the 
proper procedure for consultation5. 
 
                                                 
5 See Title IV, Section I of the Guide to consultation of the European Central Bank by national authorities regarding draft 
legislative provisions . See also paragraphs 2.2 and  2.3 of ECB Opinion CON/2012/48.  
ECB -PUBLIC 
3 3. Recapitalisation of MPS  
The recapitalisation needs of MPS, the third -largest Italian banking gr oup, are primarily  triggered  by the 
higher capital threshold required by the European Banking Authority (EBA) , which was to be 
implemented  by the end of June 2012.  The size of the Government’s new capital injection of up to  
EUR  2 billion is sufficient to c omply retroactively with EBA’s capital threshold , including a certain 
safety margin for potential future losses. The New Financial Instruments used for the recapitalisation are 
an appropriate instrument as they are classified as Core Tier 1 capital by the EBA. Thus, from a financial 
stability perspective the plann ed recapitalisation of MPS is welcome as it increases the stability of this 
systemically  relevant bank and contributes to maintaining  investors’ confidence in the Italian banking 
sector.  
 
4. Use of  government bonds to recapitalise MPS  
The Italian Government may issue  government bonds  to fund MPS’  recapitalisation. The ECB 
understands that these bonds would be sold on the market, and the proceeds would be used to subscribe to 
the New Financial Instruments issued by MPS.  This would not give rise to any concern from a monetary 
financing perspective. The ECB however notes that , where a State recapitalisation of a credit institution to 
restore its solvency take s place by way of direct placement of the governm ent-issued debt instruments , 
the subsequent use of such debt instruments  as collateral in central bank liquidity operations would raise 
monetary financing concerns  in the absence of any alternati ve market -based funding sources.  
 
5. Involvement of the Banca d’Italia  
The ECB co nsiders  that the wording of the Decree -Law compli es with the  principle of central bank 
independence. The implementing R egulation, to be adopted by the Min istry after consulting the Banca 
d’Italia  under Article 11 of the Decree -Law,  will also need to compl y with the principle  of central bank 
independence6. 
 
This opinion will be published on the ECB’s website.  
 Done at Frankfurt am Main, 3 August 2012.  
[signed]  
 
The Vice -President of the ECB  
Vítor CONSTÂNCIO  
                                                 
6  Any involvement of an NCB in the application of measures to strengthen financial stability must be compatible with the 
Treaty, i.e. NCBs’ functions must be performed in a manner that is fully  compatible with their functional, institutional 
and financial independence so as to safeguard the proper performance of their tasks under the Treaty and the Statute. To 
the extent that national  legislation provides for a role of an NCB that goes beyond advisory functions and requires  it to 
assume additional tasks, it must be ensured that these tasks will not affect the NCB’s ability to  carry out its ESCB -related 
tasks from an operational and financial point of view.  See the EC B Convergence Report 2012, p. 23.