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Updated 17:42 23/09/20

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Italy’s banking sector needs a 40-billion euro bailout

Duncan Richardson, News Editor
29 Jun 2016, 12:47 p.m.

As shock-waves vibrate across the global financial markets, Italy is preparing a 40-billion-euro bailout of their banking sector. Could this be the first domino to fall in the aftermath of Brexit?

Shares in Milan collapsed for two consecutive days following the vote. Shares in Sanpaolo plummeted 12.5%, Banka MPS fell 12% and Mediobana retreated 10.4%. The Italian banking sector is perceived as the weakest link in the European banking chain.

Government officials are ready to use state funds to recapitalize the banks via the issuance of special bonds. Non-performing Loans in the Italian banking sector now stand at 18% of all loans in existence. Italy needs the European Central Bank to step in and buy all the bad assets on the banks’ balance sheets, however, this is not allowed under EU law.

Italy’s banking system is still paralyzed after thousands of depositors were wiped out last year. The customers were categorized as junior bond holders, even though they were retail clients who did not understand what the banks were doing with their money.

The banking sector in the Untied Kingdom has also been hit hard by last week’s historic vote. Shares in Barclays Bank and Royal Bank of Scotland had to be suspended after following the UK’s surprise decision to exit the Eurozone.

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