ECB Says It Follow Rules in Monte Paschi Bailout Sign-Off 

(Bloomberg) -- The European Central Bank said it followed the rules when it decided that Banca Monte dei Paschi di Siena SpA qualified for a taxpayer-funded bailout.

The central bank complied with the law and “exercised its supervisory tasks in full independence from any undue influence or interference,” Andrea Enria, the ECB's top banking watchdog, wrote in a letter to European Parliament member Markus Ferber. Ferber had asked the ECB to explain how it decided to sign off on Monte Paschi's bailout and whether political pressure had played a role.

Bloomberg Opinion reported in June that the ECB may have perpetuated the bank's failings –- and violated its own rules -- when it signed off on Monte Paschi's $6 billion bailout in 2017.

For Monte Paschi to qualify for a so-called precautionary recapitalization, it had to satisfy regulators that it was meeting minimum capital requirements and that no taxpayer money would be used to cover existing losses.

An ECB report in June 2017 showed a need for further reserves based on Monte Paschi's assets end-2015 accounts, Enria wrote. Still, that “was considered to largely overlap” with losses booked by the bank in subsequent financial statements or those expected from the disposal of bad loans, as requested by European authorities, he wrote.

“These overlaps were confirmed by MPS and supported by its external auditors,” Enria wrote. “Where no overlap could be confirmed, the ECB asked for the provisions to be booked.”

Enria also said the ECB's decision-making process “complied fully with the principle of separation between its supervisory and monetary policy functions.”

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

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