Bundesbank President Jens Weidmann is quoted as saying the Italian government could rescue banks, after regulators rejected a request from Banca Monte dei Paschi di Siena SpA for an extension to its deadline to raise capital.
The bank had asked the European Central Bank’s Single Supervisory Mechanism for extra time to raise the 5 billion euros (£4.20 billion), after Prime Minister Matteo Renzi lost a referendum last week and resigned, triggering a political crisis.
In an interview due to be published on Sunday in the Frankfurter Allgemeine Sonntag newspaper, Mr. Weidmann said, “It cannot be ruled out that the state takes part in a crisis solution alongside investors”.
New European Union rules on failing banks make it nearly impossible to use public funds to bail out such institutions without imposing hefty losses on existing equity and junior debt holders. The rules are controversial in Italy where small investors are estimated to own about half of subordinated bank bonds.
Mr. Weidmann, who is on the ECB’s 25-member governing council, is quoted in the interview as saying the state could intervene to protect investors “for political reasons”.
The Single Supervisory Mechanism is housed within the ECB in Frankfurt and supervises around 130 biggest banks in Eurozone. Smaller banks are still supervised by national authorities.