What are the obstacles and limitations of the ECB's Single Resolution Mechanism for restructuring systemic banks like Italy's Banca Monte dei Paschi di Siena?

Details

Supervisors

Defraigne, Jean-Christophe

Faculty

Louvain School of Management

Degree label

Master de spécialisation en entreprises et politiques économiques européennes

Abstract

The initiative to act to save systematic institutions such as BMPS generates a complex discussion of benefits and disadvantages. The interest in such action stems from the need to stabilize a systemic banking institution in the face of a complex context, the political requirements linked to the sustainability of a symbolic institution, and the protection of investors and local businesses. These measures help to maintain confidence in the financial sector, while reducing the immediate economic consequences. At the same time, this strategy entails risks and constraints. The considerable impact on taxpayers raises questions about the distribution of losses, while the failure to resolve structural problems could compromise the sustainability of the institutions supported. Moreover, the impact on banking competition, by reinforcing the power of already-dominant banks, could diminish innovation and efficiency in this field. Consequently, although these actions are sometimes necessary, meticulous management and structural reforms are required to minimize adverse impacts over the long term. This research aims to explore this issue in greater depth, focusing on the BMPS case and assessing how its resolution aligned with the principles of the SRM. It will examine the bail-in’s mechanism, as well as the main obstacles encountered when applying the European framework.