The impact of the crisis on Italian Banks

Abstract

For a clearer description of the impact of the crisis on the Italian banking system, it is useful to subdivide the period from 2007 to 2011 into two acute phases: the subprime phase of 2007-09, with the turmoil on the financial markets caused by the subprime mortgage crisis, aggravated to dramatic proportions by the failure of Lehman Brothers in September 2008; and the sovereign debt phase from 2010 onward, caused by the sovereign debt crisis affecting first Greece and then the peripheral countries of the EMU: Portugal, Ireland, Spain and Italy. This approach enables us to focus more closely on the first phase, bearing in mind that the second is still ongoing at the time of writing. It also allows a more precise analysis of the crisis’s dual-stage impact in Italy: at a lower level in the first period and at a higher level from 2010 onward, with a trend contrasting with that of other countries in Europe and beyond. Between these two phases there was a short period, from mid 2009 to mid 2010, when there appeared to be the prospects (actually extremely fragile and soon to prove illusory) of a worldwide economic and financial recovery. In the second half of 2010 the sovereign debt crisis worsened again, especially in Greece, and it subsequently spread to both Spain and Italy during 2011. Towards the end of 2011 the hopes of an EU-wide recovery were finally dashed, with the forecasts for 2012 gradually revised downwards to the point where most countries were expected to go into recession, with Italy one of the worst affected of all. The aim of this chapter is to assess the impact of the crisis on the Italian banking system and to describe the measures taken by the credit authorities and the Government. The chapter also highlights the reasons, including the specific characteristics of the banking system and the entire Italian financial system in general, which explain why the country suffered less than other states during the first phase of the crisis. A number of these characteristics mutated from positive to negative factors during the course of the crisis. Some of these features will be discussed in greater detail in subsequent chapters