Behind the Potemkin Village of EU Bank Regulation

The liquidation of two small banks has left Italian taxpayers on the hook for up to 17 billion euros ($19.3 billion) and raised doubts over the credibility of the euro zone banking union. The question of whether it could have been avoided is not just academic.

This decision, which saw Intesa Sanpaolo scoop up the good assets of rivals Banca Popolare di Vicenza and Veneto Banca for 1 euro, and taxpayers to subsidize the deal, has many midwives: the European Central Bank, the European Commission, the Single Resolution Board and the Italian authorities. While all of these bodies stress that the decision was taken according to existing rules, there are questions for each of them over their actions. The overall impression is one of a Potemkin village in EU banking regulation, where formal respect of the law hides a dangerous precedent.