A plunge in shares in Italian banks, sparked by rising government bond yields, has reawakened memories of the 2011-12 debt crisis and rekindled concerns over lenders' vulnerability to sovereign risks.
boss Andrea Orcel, stress that the situation has changed and blame the drop in shares on an unwarranted knee-jerk investor reaction."It's a question of déjà vu," Orcel told a conference in Milan last week. "It's a difficult situation but it's not the same."
"I believe the restructuring of Italy's banking system to be incomplete," added Angeloni, who previously sat on the ECB's supervisory board and led the central bank's financial stability department. Nudged by regulators to diversify sovereign risks, Intesa and UniCredit have cut domestic bond holdings to 70%-80% as a proportion of their core capital.
As a result, a 100 basis point widening in the yield spread between 10-year Italian and German bonds is estimated to cost banks 20-25 basis points in terms of aggregate core capital - which is well above minimum thresholds. Investors are worried that problem loans could rise again as businesses face higher lending costs, record prices for energy and raw materials as well as disrupted supply chains and the phasing out of COVID support measures.
Incorporating time series data based on past, much looser lending practices, banks' risk assessment models tend to overestimate potential loan losses, Pirro said.
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