Monte Paschi Rescue Plan Ends With State Bailout: QuickTake Q&A

Banca Monte dei Paschi di Siena SpA needs a government bailout after all. The European Central Bank directed Monte Paschi, the world’s oldest bank, to raise 8.8 billion euros ($9.2 billion), almost twice the amount it had sought, and failed, to raise privately. New Italian Prime Minister Paolo Gentiloni -- who replaced Matteo Renzi after his ill-fated Dec. 4 referendum on constitutional reform -- will oversee the country’s biggest bank nationalization since the 1930s. Up to 20 billion euros will be available to plow into Monte Paschi and other banks, on the condition that existing investors also absorb losses.

Sort of. European Union law put in place after the 2008 financial crisis makes government support for viable banks more difficult, but a “precautionary and temporary” recapitalization is possible if a bank is solvent. The ECB said it considers Monte Paschi to be solvent. In such a recapitalization, EU state-aid rules normally require that shareholders and junior creditors take losses, a process known as a bail-in.