Modern banking got its start in Tuscany, and for a long time, they were pretty good at it. Arguably as good as they are now at making wine and cooking steak. But while the region will long be able to rest on its artistic and cultural laurels, not so banking, and at some point between the Medici era and now, Tuscan money men lost their way, much to the consternation of the Germanic peoples to the north. The former vandals now look at the mess that is Banca Monte dei Paschi di Siena, which is simultaneously suitably picturesque, Italy's third-biggest bank and also the not-so-proud owner of a balance sheet comprised of 35% non-performing loans and a stock price one-tenth of its book value—and Italy’s essential lack of options for dealing with it—and wondering if another sack of Rome mightn’t be in order.
In Europe, public money can be used in a so-called precautionary recapitalization under strict conditions. The bank must be solvent, there must be no chance to raise money privately and most important the money mustn’t be used to make up for recent or likely future losses.
This is tricky because Monte dei Paschi has been told by supervisors to sell down more of its bad loans, which will likely lead to losses.
But if it can sidestep this issue and get public money, European state-aid rules say that junior bondholders must suffer some losses. This is troublesome because plenty of these junior bonds are held by retail investors.