The Venetian Banks' Collapse
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The Venetian banks’ case is extremely interesting at a European level for many reasons. It is, of course, a great corporate governance and public enforcement fiasco. It is also probably the most significant mis-selling case in Italian financial history, at least in the few last decades. It mainly concerns the banks’ shares, not complex financial products. The shares were not listed, and the banks were in control of the informal secondary market of their own shares. The banks were financing a large part of the purchases through secret lending schemes. The share value was overstated. MiFID I rules concerning investment advice and the suitability test were completely disregarded. Clients’ portfolios were largely concentrated in the banks’ shares and thus not diversified—when the banks failed, they lost almost the whole portfolio. Before the banks’ collapse, some clients were granted a quick sale of shares to other clients who had not spotted the red flags. It cannot be said that the Venetian bank case came out of a regulatory loophole that MiFID II has subsequently closed.