The Italian Banking System: Banca Monte dei Paschi's Scandal and the Euro Area's Sovereign Debt Crisis

Abstract

The financial woes experienced by the Monte dei Paschi di Siena (MPS) and by a handful of other Italian banks in which foundations have played a prominent role offer an opportunity to reflect on three interrelated topics. The first issue is the evolution of the Italian banking system and banking legislation over the past decades to explain the rather distinctive governance structure of these banks. The second issue is the unfolding of the sovereign debt crisis in the euro area, which set the broader context in which the MPS scandal and the subsequent financial troubles of other banks took place. The third issue is the main response of the European Union and euro area to the sovereign debt crisis, namely, the proposal to create an EU banking union, which in turn triggered strong supervisory actions by the Bank of Italy in preparation for the handover of banking supervision to the European Central Bank.