Published on 23 September 2021

You can DOWNLOAD HERE the technical blog that accompanies the Politeia article on extrapolating lessons for the Eurozone, UK and global banking systems from the proposed merger of UniCredit and Monta dei Paschi di Siena.

The case raises difficult questions about whether any meaningful re-capitalization of banking systems has occurred since the Global Financial Crisis or the Eurozone crisis.

It looks more like banks, regulators and governments allowing a methodology – the Internal Ratings-Based methodology or IRB – to become the universal palliative in making capital appear adequate to banks’ on- and off-balance sheet business.

The reality appears to be that the IRB calculations get flexed merely to make the two sides meet: the volume of the bank’s business on the one side (growing in amount and risk) and the bank’s capital on the other (small and fixed).