Opinion of the European Central Bank of 3 August 2012 on recapitalisation of the Banca Monte dei Paschi di Siena (CON/2012/64)
Date: 2012-08-03
Institutions: European Central Bank
Subjects: Italy, bank, bond, capital increase, financial stability, issue of securities, national law, share

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 3 August 2012  

on recapitalisation of the Banca Monte dei Paschi di Siena 

(CON/2012/64) 

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 Economic Affairs and Finance for an opinion on the Decree-Law. Articles 5 

to 12 of the Decree-Law regard recapitalisation of the 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  recapitalisation  objectives  in  line  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 conditions. 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  will  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 Financial Instruments issued by MPS4. Another 

condition for the activation of the scheme, which will be in place until December 2012, will be the 

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4  

Decree-Law No 87 of 26 June 2012, Gazzetta Ufficiale della Repubblica Italiana No 148, 27.6.2012, p. 3. 
OJ L 189, 3.7.1998, p. 42.  
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. 
The total amount of New Financial Instruments issued by MPS would be up to EUR 3.9 billion. 

 
 
 
 
                                                 
ECB-PUBLIC 

adoption by the European Commission of a decision confirming that the Decree-Law is compatible 

with the Union framework for State aid measures.  

1.2  Under the scheme, MPS will send a request with a restructuring plan, to the Ministry and the Banca 

d’Italia  at  least  30  days  prior  to  the  planned  date  for  the  subscription.  If  Banca  d’Italia  gives  a 

positive assessment within 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 will not carry voting rights and may be converted 

into ordinary shares at its request. MPS will have the right to repayment or redemption, subject to 

authorisation  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 equity 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 use 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 implementing the Decree-Law 

and adopting a prospectus for the New Financial Instruments. The prospectus will govern interest 

payments, redemption, repayment and conversion, as well as any other element needed to manage 

the phases following subscription to the New Financial 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. Paragraph 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 draws 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. 

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3. 

Recapitalisation of MPS 

The recapitalisation needs of MPS, the third-largest Italian banking group, 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  comply  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  planned 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 takes place by way of direct placement of the government-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 alternative market-based funding sources.  

5. 

Involvement of the Banca d’Italia 

The  ECB  considers  that  the  wording  of  the  Decree-Law  complies  with  the  principle  of  central  bank 

independence.  The  implementing  Regulation,  to  be  adopted  by  the  Ministry  after  consulting  the  Banca 

d’Italia under Article 11 of the Decree-Law, will also need to comply 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 ECB Convergence Report 2012, p. 23. 

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