The global financial crisis of 2007-09 led to the collapse of a several banks in Italy. This had devastating effects on the most vulnerable depositors, who saw their life savings wiped out and businesses forced into liquidation.
The Italian Government was limited in what it could do to prevent further bank failures due to European Union (EU) law restrictions on providing State aid to businesses.
In 2016, the Italian Prime Minister appointed Professor Andrea Biondi as his Legal Advisor. Drawing upon his expertise in State aid and EU law, Biondi’s task was to assist with the creation of a scheme to rescue the banks that was compliant with EU regulations.
Biondi argued that some public spending measures should be excluded from review by the European Commission. Whilst some rules are necessary to prevent Member States giving businesses unfair advantages, applying the rules too strictly meant EU Member States could not fulfil their social responsibility to protect savers
Under Biondi’s innovative reworking of the definition of ‘State aid’, measures do not qualify as State aid if public expenditure is kept to an efficient minimum and the State pursues beneficial public policies. This fine balance is particularly relevant to the effective State regulation of the banking sector.
This led to the creation of what became the Atlas Fund (in Greek mythology, Atlas was responsible for bearing the weight of the heavens on his shoulders). The Atlas Fund was a EUR 4 billion ad hoc scheme, financed by large Italian commercial banks, which transferred financial risk from the government to private undertakings. The Fund paid EUR 181 million in compensation to depositors who would otherwise have lost all their money. This is nearly half of the EUR 340 million of toxic obligations sold by the banks to depositors (or the savings that would otherwise have been wiped out).
Mario Draghi, the then chairman of the European Central Bank, described the Fund as a first “step in the right direction”. The shoulders of the Atlas Fund proved capable of carrying at least some of the burden of the continuing impacts of the devastating financial crisis of 2007-09, which were felt across the world. Its pragmatic approach played a role in reassuring markets by preventing financial panic from spreading.