Executive Intelligence Review

FROM EIR DAILY ALERT


Deputy Prime Minister Salvini Accuses the ECB of Wrecking Italian Banking Sector

Jan. 17, 2019 (EIRNS)—Italian Deputy Prime Minister Matteo Salvini has accused the ECB of wanting to destroy the Italian banking sector. Salvini called “abusive” the ECB ultimatum to the bank Monte dei Paschi di Siena, by which the ECB mandates placing a zero value on the backlog of non-performing loans (NPLs).

“The newest hard tack by the ECB can create €15 billion in damage to Italy,” Salvini said in a written statement. Salvini called for more transparency in the ECB choices, “to drive away the doubt that the ECB is making a political use of its powers.” The ECB action is a demonstration

“that the Banking Union ... has not only failed to make our financial system more stable, but it rather causes instability, threatening citizens’ savings and a banking system, such as Italy’s, which had withstood the big financial crisis better than all others in 2008.”

The ECB has adopted “abusive behavior” and bypasses “recent decisions by the [European] Commission.” (Salvini refers to an EU Commission decision to apply the new rules only to future NPLs.) “Independence does not mean irresponsibility,” Salvini stated.

In an article entitled, “The Conflict Between Italy and the ECB Escalates” of Jan. 15, Reuters leaked that the ECB has sent guidelines to all Italian banks, similar to those sent to Monte dei Paschi di Siena, setting a deadline for selling their NPLs on the market. The deadline varies bank to bank.

As EIR has reported, such an ultimatum forces banks to accept the prices offered by vulture funds, which buy NPLs for a dime and make up to 400% gains by seizing the attached collateral. Nevertheless, the ECB is now demanding that NPLs be valued not even at that discounted price, but at zero value on the banks’ books, forcing banks to put up additional loan loss reserves amounting to 100 percent of the face value of those loans.

Salvini is totally right when he accuses the ECB of destroying the commercial banking sector. It is outrageous that the ECB values defaulting commercial loans at zero, while at the same time allowing investment banks to keep toxic assets at par value on their books. For instance, Deutsche Bank values at €23 billions its level 3 derivatives, which are super-toxic, and have no market price and no collateral attached. The ECB has not asked Deutsche Bank to remove those losses from the assets on its balance sheet. (Indeed, if the ECB did so, Deutsche Bank’s losses would be greater than its capital.)

T