Italy's central bank arranged the loan in October 2011 because MPS was running short of liquidity and had largely exhausted its ability to keep borrowing from the ECB ... The loan wasn't disclosed at the time by either the Italian central bank of MPS. In a conference call shortly after receiving the emergency loan, MPS executives described the bank's liquidity position as sound.
Mr. Saccomanni said that, with its loan to MPS, the Bank of Italy—which was led at the time of the loan by current ECB President Mario Draghi—didn't violate any rules. The loan was "utterly normal central bank behavior," he said. He added, however, that no other Italian bank was party to such an arrangement.
Under the deal, MPS swapped loans and mortgages for some €2 billion of mainly Italian government bonds.
In discussing the transaction, Mr. Saccomanni said that Italy essentially has two central banks that are both lenders of last resort. One is the European Central Bank, which, via the Eurosystem, includes national central banks of member countries. The other is the Bank of Italy, which can conduct lender-of-last-resort operations on its own account.
"Anyone can do it," Mr. Saccomanni said, adding that similar transactions have been carried out by other national central banks in the euro area.
Some central banks, such as those of Greece and Ireland, have used their own balance sheets for such lending to domestic banks, under the Emergency Liquidity Assistance, a special dispensation from ECB protocols.
Mr. Saccomanni said the Bank of Italy, which never requested to use the ELA, informed the ECB of its loan to Monte dei Paschi, but wasn't required to ask permission