The Bank of Italy wants it be known that it repeatedly raised concerns about the situation at Monte dei Paschi di Siena, the bank at the centre of the country's latest financial scandal. But in doing so, the Italian central bank has also revealed that it should have pushed harder and with greater urgency to address the situation.
The Italian regulator's report shows that it knew full well that MPS had bitten off more risk than it could chew. It first started looking at the bank's liquidity risk in the second half of 2009. Three meetings in the spring of 2010 served to strengthen its conviction that something was amiss.
MPS managers may have withheld key information and documents from the Bank of Italy – a mitigating factor. But in May 2010, the central bank said it thought MPS was in a "potentially critical" state. Repos worth a combined €5-billion ($6.8-billion) with Deutsche Bank and Nomura had tied up the lender's assets and left it facing a liquidity crunch. It then took a surprisingly long time for anything to change at MPS as a result.
The BoI did initiate an inspection of the lender's activities in the latter half of 2010. That unearthed further flashpoints related to the bank's sovereign and interest-rate risk. From then on, the central bank demanded regular reports. But given its initial alarm, it beggars belief that MPS took so long to shore up its capital position. The Sienese lender finally raised €2.5-billion in April 2011, almost a year after the BoI thought MPS was on the brink.
That, in turn, was two years after Monte Paschi's €1.9 billion state-financed bailout. At the very least, that should have given the BoI a mandate to force more rapid change at MPS.
The regulator can't have it both ways. It was either an engaged, perceptive supervisor that could and should have acted faster. Or it failed to do its job. The latter charge is unfair: the central bank monitored MPS's dealings extensively. But it is to be hoped that its governor at the time Mario Draghi, soon to become the euro zone's new banking supervisor-in-chief, has learned from the debacle.