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Updated 20:00 10/05/21

The next financial crisis could start with Italian Banks

By Duncan Richardson, News Editor

12 Jul 2016

Concerns over the health of the Italian banking sector is starting to spook the financial markets. Figures suggest 17% of all loans issued by Italian banks have gone bad, which is equivalent to £300bn.

Market volatility following Brexit has hit the sector hard. A perfect storm of low growth, political instability, corruption and low interest rates is undermining the banking sector.

The political elite in Brussels are opposed to an EU bailout, instead they prefer shareholders and junior bondholders to take a haircut. This will not be politically acceptable in as most of the junior bonds have been sold to the Italian public.

Italy is the 8th largest economy in the world and the amount of money needed to bail out the countries banks far exceeds the amount lent to the PIGS (Portugal, Ireland, Greece and Spain) following the 2008 economic crisis.

Even more worryingly reports are surfacing bank runs are taking place right across Italy. Queues are apparently forming outside ATM’s as Italian rush to withdraw their cash. If this gains momentum the whole banking sector could collapse.

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