Orderly liquidation of Banca Popolare di Vicenza and Veneto Banca

On 25th June the European Commission approved the Italian government’s plan to facilitate the liquidation of Banca Popolare di Vicenza (BPVI) and Veneto Banca. According to the European executive, the measures are in line with the EU’s state aid rules because "existing shareholders and subordinated debt holders have fully contributed to the costs" and the two failing banks "will be wound up in an orderly fashion and exit the market". The plan also involves the sale of some of the businesses and the transfer of employees of the two banks to Intesa Sanpaolo, which was selected “after an open, fair and transparent sales process”.

A couple of days before, the European Central Bank declared that BPVI and Veneto Banca were failing or likely to fail. For the Single Resolution Board the two regional banks were not systemic, therefore they would have to be wound down under national insolvency procedures. In fact, the two banks together account for only 2% of Italian deposits. The Italian authorities in charge of the liquidation considered it necessary to intervene with public support in order to avoid a major impact in the region where the two banks operate. In particular, the Italian measures consist in cash injections of over 4.7 billion euros and state guarantees of 12 billion euros on Intesa’s financing of the liquidation mass. In such circumstances EU state aid rules apply and the Banking Communication of 2013 requires that shareholders and subordinated bondholders fully contribute to the costs and that competition distortions are limited.

Despite the massive package, EU’s competition watchdog found these measures to be in line with state aid rules. However, this approval raises some concerns about the application of banking resolution rules, in particular the Bank Recovery and Resolution Directive. For a number of European commentators there are some analogies with the case of the Spanish Banco Popular, where different measures have been adopted for solving the same problem. While the Italian regional banks have been saved with a domestic resolution thanks to state aid, the fifth’s largest Spanish bank has been paid by private bondholders. The banking union has been set up in order to reduce political discretion on crisis management, to avoid that national interests affect the banking industry. Can we really say that the principles of the banking union worked in this case, or did the old logic still prevail?