Bad loans are not the worst threat to Italian banks

Savers demonstrate to demand more guarantees on their deposits and bonds, similar to those in crisis-stricken Italian banks
Rome, June 8, 2016: Italian savers stage a protest against government measures to save four failed banks (source: dpa)
  • A handful of Italian banks are in a serious trouble
  • The Italian banking sector suffers from low profitability and a high burden of nonperforming loans, but capitalization remains satisfactory
  • However, if Italian government bonds suffer significant losses due to a deterioration of public finances, some 100 billion euros could evaporate from banks’ balance sheets

In recent weeks, two major events have sent tremors throughout the European Union: Brexit and a newly unveiled crisis in the Italian banking system. After the initial shock, Brexit is no longer making headlines. Italy’s banks are far less shocking, though. The strain in the Italian system has been public knowledge for years.

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