News & Analysis
Could You Make It Up? ... World's Oldest Bank Gets Modern Bailout Worth Billions
Italy to put €2bn into world's oldest bank Banca Monte dei Paschi di Siena ... The Italian government said Tuesday it will provide struggling Banca Monte dei Paschi di Siena, the world's oldest bank, with up to €2bn to cover a capital shortfall. – UK Telegraph
Dominant Social Theme: We've rescued all the rest, so why wouldn't we rescue the oldest one?
Free-Market Analysis: Every day we slap our (admittedly low-slung) brows and let out whistles of amazement. The latest reason: It seems the world's oldest private bank is in need of a government loan.
Once upon a time all banks were private, even the ones that belonged to the ruler. Banks were basically warehouses that collected gold and silver and issued receipts. These receipts later on turned into the monopoly fiat (unbacked) paper we use in such quantities today.
In this little squib of a news article (excerpted above) we do not see any sense of amazement being expressed that a bank that has survived independently for some 600 years suddenly needs a huge injection of "capital."
You would think that sort of thing might raise the proverbial red flag. We are obviously past that sort of questioning. It is apparently taken as a matter of course that if a bank is in jeopardy of bankruptcy it must not be allowed to fail.
Of course, we are treated in the article to the usual reasons for such a bailout – most predictably it is because the Italian government is struggling to stave off "debt contagion." Here's some more:
The government has adopted "urgent measures to raise BMPS's capital funds", it said in a statement, as Italy struggles to stave off debt crisis contagion. The aid was necessary because the bank had admitted it was "impossible" to find private investors to boost its funds owing to "currently highly volatile market conditions" as the eurozone crisis intensifies, the government said.
The financial lifeline will allow the Tuscan bank, founded in 1472, to bring its core tier one capital ratio to 9pc of total assets, thereby conforming to the rules of the European Banking Authority (EBA). On top of the aid, Rome will substitute a loan it gave the bank in 2009 with a new loan, bringing the total amount of aid channelled into BMPS to a maximum of €3.9bn (£3.1bn).
The announcement of the government aid comes as the bank's board examines a strategic plan for 2012-2015, that includes measures aimed at shoring up its capital. The EBA requires that Italian banks raise extra capital on a temporary basis to offset the risk on holdings of Italian government bonds.
The article's calm tone piles lunacy on top of ludicrousness. Not only does the world's "oldest" bank, if that is what it is, need additional funds, it must acquire this capital because of various state mandates that additional money is necessary!
The very "capital requirements" demanded by the European Union are apparently a reason for the state's actions. Not only that, but it is the bank's treasury holdings that help put it at risk.
So let's summarize. The world's oldest bank bought Italian state bonds that have now jeopardized its solvency. The European Union has made things worse for such banks by demanding that additional capital be held to offset so-called sovereign risk.
Because the bank has purchased these risky instruments, the issuer – the Italian state – has stepped in to ensure the solvency of the very facility (bank) it has endangered with its ill-advised issuance of the instruments that have sickened the bank.
The final level of insanity – for us anyway – is the utilization of the money itself. The EU did not demand that the bank buttress its holding with gold or silver, but only with additional monopoly fiat money ... with euros, in other words.
This is the same euro that is gradually losing its solvency as the world adjusts to the reality that the it is neither backed by something of value nor represents even the collective labor of European citizens, many of whom would gladly give up the euro if only they could.
Ultimately, this sad-sack "oldest bank" is dealing in state monopoly money and apparently has neither gold nor silver to buttress its assets. It purchased potentially worthless paper notes from the Italian government and now needs to acquire equally worthless paper money to expand its asset base.
Since it has no assets with which to purchase the additional assets, the Italian government itself is providing euro paper assets – printed from money-from-nothing – that purportedly will assure the bank's solvency.
Conclusion: You couldn't make this stuff up!