Italian ones, this time. Well, one bank in particular. Monte dei Paschi di Siena (MPS), the centuries-old bank that is drowning under a growing pile of distressed loans. Since the private sector has now refused to cough up enough capital to close the shortfall identified in this year’s stress tests, it is to be provided with 8.8bn euros of new equity capital, most of it by Italian taxpayers.
Not that MPS is insolvent. The adverse 2018 scenario in the stress tests reduced its core Tier 1 (CET1) equity to negative 2.23%. That is, of course, insolvency. But hey, it’s just a scenario. Officially, it meets its CET1 and baseline solvency requirements. So it is solvent. Isn’t it?