6.6.2.3 Retail investor protection may be underlying rationale for decisions

In the cases of Banca Popolare di Vicenza and Veneto Banca, it is questionable whether resolution was not in the public interest. Whether or not the SRB made the right assessment in relation to whether resolution would serve the resolution objective of ‘financial stability’ is difficult to assess without having all the facts. Taking into account the amount of State aid that Italy notified to the Commission, the case of Banca Popolare di Vicenza and Veneto Banca could however potentially also have been warranted in the public interest in order to protect public funds. This, however, requires that resolution would have protected public funds better than liquidation. This was potentially only the case would the bail-in tool have been applied by the SRB. Moreover, the bail-in tool should have been applied in order for Italy to be able to award State aid to the banks in resolution. This was problematic, because this would have led to the bail-in of retail creditors, unless the SRB had excluded the retail liabilities from the scope of the bail-in tool. This would, however, have necessitated the SRF to step in to fill the funding gap before there could be any access to State aid from Italy. It is possible that the SRB did not want to set a precedent in relation to retail liabilities, or that the SRF was not quite ready yet for assisting Banca Popolare di Vicenza and Veneto Banca.

If the underlying rationale for not placing the banks in resolution was indeed the protection of retail investors – or the protection of the SRF –, this is, in the author’s view, a sign that the resolution framework lacks transitional provisions for banks that have insufficient levels of bail-inable debt that can actually be bailed-in, than that the resolution conditions are not fit for purpose.