What is also clear is that, in each and every instance, shareholders and subordinated creditors need to be bailed in before the government coffers are opened.
With regard to Italy’s Monte dei Paschi di Siena, what this means in concrete terms is that the institution’s capital base was first bolstered by € billion by converting subordinated debt instruments into equity, with the Italian government then injecting an additional € billion. However, the government will offer compensation to retail investors, thereby increasing its stake in the bank.