What's going on?

Italian banks are back in the spotlight this week: on Wednesday, the troubled bank Banca Monte dei Paschi di Siena (MPS) set out its plans for the future after getting the green light from European Union (EU) regulators for a �5.4 billion bailout by the Italian government.

What does this mean?

Saddled with bad loans (i.e. loans made in the past that aren�t likely to be paid back) and scarred by former management, MPS (Italy�s fourth largest bank) has been known as one of the weakest banks in Europe for quite some time, perennially relying on public bailouts to stay in business.


The Italian government says that the newest bailout is the best way to restructure the ailing bank, while protecting small �mom-and-pop� investors in MPS, who unwittingly invested their savings into the bank�s bonds and could lose everything if the bank went under. In exchange for the public money, the Italian government has taken a majority stake in the bank and plans to significantly restructure the business.

Why should I care?

For markets: MPS� bailout doesn�t seem to be the first domino in a bigger financial crisis.

Despite the news, European stock markets were calm on Wednesday. Investors, however, have known for some time that MPS would be taking public money this year � so Wednesday�s news hasn�t sparked the same kind of uproar as other bank bailouts have�


The bigger picture: Taxpayers are still on the line.

Combined with last week�s pledge of �17 billion to shore up losses at two smaller Italian banks, Italian taxpayers now face a bill of up to �22.4 billion to clean up the country�s banking sector. The EU specifically designed a new rulebook on bank bailouts that would prevent taxpayers from having to pick up the bill; instead, a bank�s lenders (e.g. big investment firms) should take a hit if it runs into financial trouble. However, with the help of a few loopholes, the Italian government has sidestepped those rules and will have the country�s taxpayers finance the bailouts.