Italy’s Venetobanking meltdown destroyed200,000 savers and 40,000 businesses

EU bail-in rules have wiped out billions for savers and and businesses, with more at risk

Bail-ins are not unique to Italy, all Western savers are at risk of seeing savings disappear

Counterparty-free, physical gold bullion is best defence against bail-ins

One of Italy’s twenty regions is calling for more autonomy from the state following a nonbonding referendum. Why? Because agovernment supported ‘rescue package’causedthe lifesavings of 200,000 savers to be wiped out during the implosions ofPopolare di VicenzaandVeneto Banca.

Since then the banks have been rescued in one way or another yet the impact of the collapse on individuals and small businesses is only just becoming clear.

As in Spain’s Catalonia the region of Veneto is wealthier than the average Italian region, with its own industries and language yet it has been left with a pile of ash when it comes to its banking sector.

The region is proud to be the home of successful brands such asBenetton, De’Longhi, Geox and Luxottica. But it is the 40,000 small businesses that are in a state of limbounable to pay workers, find credit or operate on a day-to-day basis.

Sadly the case of Veneto is one of a growing list of regions of banking customers that have been destroyed due to the incompetence of national authorities and the overbearing powers of the EU.

Profitablebusinesses take the hit

What is seen is as surprising to many reading about the story of Veneto is that profitable, stable businesses are alsosuffering as a result of a banking collapse.

When someone’s savings are wiped out, that isn’t the end of the nightmare. Many businesses were exposed to those banks both through credit and shares.

Many businesses operate on credit. This happens in companiesof all scales and levels of success. The businesses that borrowed from the two Veneto banks are now in a state of limbo. They have no line of credit due to their exposure tothe collapsed banks.

This is despite a government-led body stepping into help manage the fallout and finances of the ruined institutions. Bloomberg explains:

Even a perfect credit score is useless in Veneto now if your only collateral is stock in either bank, which were coveted investments for generations of locals.

Bail-in of the first resort

Italians are in very deep financially when it comes to their banking system. The 2015 IMF report states:

Retail holdings in Italy are relatively large compared to other countries, comprising about one- third of about 600 billion worth of bank bonds and half of about 60 billion worth of subordinated bonds.

That is all money that will just disappear overnight in the case of bank failure. In some cases, it already has.

In Italy a common problem has been that savers and businesses were persuaded to invest in subordinated (junior) bonds by their bank managers.

By 2015 over 31 billion of retail sub bonds had been sold to retail investors. Retail investors are ordinary savers and small businesses.

‘Households hold about one-third of senior bank debt and almost half of total subordinated bank debt.’ IMF

These bondholders are seen as creditors. The same type of creditor that EU rules state must take responsibility for a bank’s financial failure, rather than the taxpayer. This is a bail-in scenario.

In a bail-in scenario the type of junior bonds held by the retail investors in the street is the first to take the hit. When the world’s oldest bankMonte dei Paschi di Siena collapsedordinary people (who also happen to be taxpayers) owned 5 billion ($5.5 billion) of subordinated debt. It vanished.

A 2015 IMF study found that the majorityof Italy’s 15 largest banks a bank rescue would ‘imply bail-in of retail investors of subordinated debt’. Only two-thirds of potential bail-ins would affect senior bond-holders.

Nothing will respect you like gold does

Why put so much faith in the bank? Because, despite many financial crises in the last 100 years, savers and businessesstill believe their money will be safe.

The graph above shows just how much we still trust our banks. The least trusting country is Italy yet their exposure has been so great, imagine what damage will be done when the likes of the UK, US or Germany face a bail-in situation.

In Italy where banks have been around for literally hun