Monte dei Paschi di Sienna Bank is the oldest bank in Italy, Europe, and the world. It is also among the most important financial institutions in Italy as the third largest Italian bank. As the flagship brand of the MPS Group (Monte Paschi Sienna), it leads the domestic market and lending market in market share percentages. It trades on the country’s most impressive and respected index, the FTSE MIB in Milan, the nation’s financial center.
The bank is affectionately known as “il Monte” by millions of Italians who are customers, investors, or creditors to it around the country. Founded in 1472 by merchants in the then Republic of Sienna, the bank has evolved into the ideal reminder of the once-glorious medieval banking and mercantile traditions of both Sienna and the formerly independent Italian city states.
Unfortunately for Monte dei Paschi di Sienna Bank, the world’s oldest lending institution has lost its luster and is no longer solvent. Il Monte’s financial woes began back in the wake of the American-bank caused financial crisis of 2007. Since then, the Monte dei Paschi di Sienna Bank has announced bad loans to the tune of an eye-watering 28 billion Euros (almost $30 billion US). It has been recapitalized three previous times and yet still desperately trying to secure 5 billion Euros in new capital in order to fund continuing operations. As of end of December 2016, the bank had failed to successfully come up with more than half that amount. Its shares ceased trading on the Italian stock market on the news on December 22nd, as Italian lawmakers urgently approved a 20 billion Euros rescue package fund for the listing bank.
Despite the fact that European Union regulations frown on public bank bailouts since the banking law reforms enacted following the financial and European Sovereign Debt crises, Italy is doggedly pursuing such a rescue. The reason is because of contagion fears to the rest of the Italian banking system, which may easily also spread beyond the national boundaries into the continental European bank powerhouses of embattled German largest financial institution Deutsche Bank, French titans BNP Paribas and Societe Generale, and Swiss behemoths UBS and Credit Suisse.
The Italian banking system is critically important because it is the life blood of the third largest economy in the Euro Zone. Italy is at the same time the second biggest debt to GDP ratio holder in Europe. This is also a scary concern for investors, who know all too well that Italy is the world’s third largest sovereign bond market after the United States and Japan. Millions of investors and financial institutions in Italy, the EU, the U.S., and the rest of the world even have exposure to the Italian government bond markets. Besides this, Italy is a member of the G7 great nation economies of the world, with a trillion dollar plus economy whose health and financial future has a very material impact on both the EU and the world economy as a whole.
The global economy can not survive an Italian banking crisis. Italy has become too big to fail as a nation. Italy’s largest bank Unicredito remains one of the world’s systemically critical global banks. Yet the country is fully in a banking crisis anyway you look at the situation. If Monte dei Paschi di Sienna Bank can not be saved, the resulting Italian banking system crash could cause the entire Euro zone to unwind and the world economy to enter yet another Great Recession as in 2007-2009.
Despite feeble attempts to curb their government debt, the Italian government has only watched it grow to 133 percent of their entire GDP. The most current Bank of Italy provided data proved that the nation’s total public debt increased to an astonishing €2.22 trillion through October 2016. With this enormous public debt burden saddling down Italy, the nation faces a literal ticking time bomb thanks to the boiling bank crisis.
This is why the fate of Monte dei Paschi di Sienna may rule the futures of not only its countless Italian pensioner investors and creditors, but also citizens of the whole world. Two decades before Christopher Columbus found the Americas, the bank that holds the key to the stability of the world banking system today first arose. Now the venerable Tuscan-based lender is threatening to overturn the very Western world economies it helped to usher into the modern era of banking and finance as people know it today.