By Francesco Guarascio
BRUSSELS (Reuters) - The head of the euro zone banking watchdog said on Wednesday she had no concerns about how EU bank failure rules had been applied in the public rescue of Italy's Banca Monte dei Paschi di Siena <BMPS.MI>.
The Italian government and the EU supervisory authorities "are doing a good job" in the Monte Paschi case, Single Resolution Board chair Elke Koenig told a news conference.
Rome used a clause in EU rules on banking liquidation to reduce losses on Monte dei Paschi's creditors when it decided to rescue the ailing bank in December.
"I would not be concerned by that rule," Koenig said.
The European Commission and the European Central Bank will assess the Italian government's rescue plan and the bank's business plan when they are finalised in coming weeks to check their compliance with EU banking and competition rules.
Koenig added that the SRB, which is in charge of overseeing the orderly liquidation of failing banks, "is closely following all relevant developments in Italy and also in other member states".
The EU's new rules on bank liquidation have been operational since 2016 and are aimed at reducing taxpayers' costs in bank bailouts.
They were introduced after euro zone states provided a trillion euros in cash and guarantees to salvage lenders hit by the 2007-08 global financial crisis and the 2009-2012 euro zone debt crisis.
Under the rules, a bank's creditors are required to bear heavy losses, in a so-called 'bail-in', before a lender can be bailed out with public money.
But the exception to the rules, used by Italy, allows states to provide lenders in extraordinary circumstances funding for a 'precautionary recapitalization" with lower creditor losses and without triggering a liquidation.
Koenig said that some of the conditions for the precautionary recapitalization were fulfilled, but declined to comment on whether a liquidation of Monte dei Paschi, Italy's third largest lender, would pose a threat to the country's financial stability - another condition for the precautionary recapitalization.
"Not all bank failures are a threat to financial stability," she said in a general remark about the state of the euro zone banking sector.
The Italian government has also devised a mechanism to compensate Monte dei Paschi's creditors that were missold risky bonds. Koenig said compensation for misselling would be in line with EU rules but did not clarify who should bear the cost of such an operation, whether the Italian state or the bank itself.
(Reporting by Francesco Guarascio; Editing by Toby Chopra)