The ailing Italian lender has failed to raise capital from private investors and, more recently, failed to raise capital from its existing stakeholders.
But after a remarkable U-turn from the Italian government on Monday, Carige may finally have found itself a new backer — the taxpayer.
Having spent the best part of the last few years railing against state-sponsored bank bailouts, the governing coalition said in a statement at the beginning of the week that it would be ready to support Carige by offering guarantees on new bond issues and, should it be required, a precautionary injection of fresh capital.
Carige has already applied for the bond guarantees being offered by the Italian treasury.
Should the bank then struggle to shift non-performing loans from its balance sheet and find a willing and interested buyer — something that has not yet been forthcoming — the government is also promising a “precautionary recapitalisation” to prevent the bank from missing the European Central Bank’s capital targets.
Besides marking an important change in the government’s approach to solving Italy’s banking problems, the latest developments in the Carige case also threaten to chew up and spit out a set of rules around bank resolution that are already lying in tatters.
In 2017 Italy exposed a loophole in these efforts to end taxpayer bailouts, pumping about €8bn of public cash into Banca Monte dei Paschi di Siena in the form of a “precautionary recapitalisation”.
In the same year, the country gained EU clearance to offer to support two struggling Venetian banks — Banca Popolare di Vicenza and Veneto Banca — by providing state guarantees against their senior bond issues.
The pair later collapsed and were sold to Intesa Sanpaolo in a deal that was, again, sweetened with public support.
Neither of these episodes went unnoticed in the wider banking community in Europe.
In a conference organised by the Single Resolution Board last year, the MEP Philippe Lamberts complained that the Italian experience had proven that Europe’s rules around bank failures were “half baked” and “still gameable”.
But in combining some of the most egregious features of each of the previous two rescues, the Carige case is shaping up to be an 11 inch nail in the coffin of the EU resolution rulebook.
To gain approval for any state aid measures, a country has had to argue that the actions are in the public interest.
Member states must usually demonstrate that without money from the government, the failure of an institution could lead to a “serious disturbance” in the economy.
Though Italy was able to do this successfully in the case of Monte dei Paschi and the two Venetian banks, which weighed in with €150bn and €65bn in assets respectively, the case is far less convincing for Carige, which had about €25bn in assets at the end of 2017.
Indeed, experts on the capital markets and the Italian banking sector have stressed time and again that Carige is an “idiosyncratic” risk and that it could be allowed to fail without too much spillover into the rest of the banking system.
Should the powers that be in Europe give the nod to what would effectively be another bail-out in Italy, it will likely divert the spotlight from the country’s banking crisis once again.
But it will also show that that any bank, no matter its size, can be seen as being too big to fail in the country, shifting focus onto the next most imperilled lender in Europe.