Bank Runs in Italy -- Italian Banks Start to Wobble !!

Italy’s banking sector is looking increasingly vulnerable and analysts are starting to fear that the euro zone’s third largest economy could “go under,” warning of the potential for bank runs, credit rating downgrades and the threat to the wider European banking system. Italy could be a bigger threat to euro zone stability than Brexit . Italy is too big to fail, too risky to be ignored. Welcome to The Atlantis Report. Among the reasons to fear that Italy could be heading for a full-blown economic crisis is the precarious sate of its economy. Amazingly, Italy’s per capita income is lower today than it was on the eve of the country’s euro adoption in 1999. Equally remarkable is the fact that over the past decade, Italy has experienced a triple-dip recession, and it is yet to regain its pre-2008 crisis output level. Italy is a country of systemic importance to the global economy. Having an economy 10 times the size of the Greek economy. As such, it has the potential to trigger a global economic and financial market crisis. Italy is too big to fail for the euro to survive in anything like its present form. It has the potential to do so in much the same way as the September 2008 Lehman bankruptcy had the potential to set off the worst global economic recession in the post-war period. Having the world’s third-largest sovereign bond market, with €2.5 trillion in outstanding debt, Italy is probably too large an economy for Europe to save.(Another indication of Italy’s importance to the global economy is the fact that it has the world’s third-largest sovereign debt market after that of the United States and Japan, with a total public debt of more than $2.5 trillion.) If Italy's debt goes to junk status, help from the central bank could dry up, or come with steep conditions. Were Italy to default on that debt, as would almost certainly occur were its government’s borrowing cost to increase should Italy leave the euro, it is difficult to contemplate that there would not be a full-blown European banking crisis that would reach America’s shores. Being the eurozone’s third-largest economy, it is 10 times the size of that of Greece. As such, it makes it difficult to contemplate how the euro could survive in anything like its present form were Italy forced to exit that monetary arrangement. Italy’s public debt is officially estimated to be at around 133% of GDP, making Italy the second most indebted country in the Eurozone after Greece. However, the official Italian debt numbers do not include the Bank of Italy’s debtor position of more than EUR 400 billion in the European Central Bank’s Target 2 accounts. If one adds the Bank of Italy’s Target 2 liabilities to the Italian public debt total, the public debt to GDP ratio rises to 160%, taking that ratio to its highest level in over 100 years. Sadly, there is every reason to expect that Italy’s Target 2 balance will worsen in the months ahead as the unsettled Italian political situation encourages capital flight. Another reason to think the Italian official public debt numbers are understated is they do not take into account the likely cost of government support for the country’s troubled banking system. This support could be large considering that the Italian banks’ nonperforming loans amount to as much as 15% of their balance sheets, while almost a further 10% of their balance sheet is made up of Italian public bonds. As if all of this were not bad enough, Italy’s public debt suffers from the fact that at around only 7 years the average maturity of the debt is relatively short. In practical terms, the country will have to roll over more than EUR 600 billion of its debt over the next three years and more than half of its debt over the next five years. This could prove to be challenging in a less favorable global liquidity environment than at present. The truth of the matter is that Italy’s adoption of the euro in 1999 was a recipe for economic failure., over the past 20 years, Italy has managed to lose more than 20 percent in competitiveness to Germany. Stuck in the euro, Italy can no longer resort to currency depreciation to correct such losses in competitiveness.Remarkably, Italy’s per capita income is lower today than it was on the eve of Italy’s euro adoption. Equally remarkable is the fact that over the past decade, Italy has experienced a triple-dip recession, and it is yet to regain its pre-2008 crisis output level. The only historical analogy to this Italy/EU trade imbalance is - in my mind - WWI war debts, which proved to be unpayable - everybody defaulted. Essentially one of the causes of the Great Depression.Italy has only one option - leave the euro, and default on its debts. lack of economic growth has contributed to the weakening of the Italian banking system. That weakness is underlined by a level of non-performing loans that amount to around 15 percent of the banking system’s balance sheet. On Wall Street, it is said of Italy that it is too big to be allowed to fail , Italy is too big for Europe to bailout. Knowing that the size of the Italian banking system is almost EUR $4 trillion.Italy is a country whose citizens are among the very most risk averse and financially conservative in the world . Italian massive savings base has traditionally been invested mostly in BTPs, now it will progressively seek higher returns. It is a secular story, not a business cycle one. Italy is a very complex country and numbers need to be considered carefully. One example is industrial production: many more that industrial production in Italy has not recovered the 2007 level; most likely it never will because the country is shifting away from certain products and into others. This is not negative, because many goods that traditionally have Italy the second industrial production in Europe are not economically viable in 2019 in developed countries. It is good that Italy shifts away from industry and into services, although in the short run this process will be costly. Same argument can be made for the banking system, which will eventually benefit a lot from consolidation, although in the short run this will mean more small banks facing distress. In my opinion demographics are the number one issue Italy will need to deal with (together with many other European countries) and unfortunately politicians turned immigration into a hot topic purely on the short term effects of receiving refugees from Africa instead of discussing the fact that Italy does need a lot of immigrants in the next few decades to soften the effects of its aging population. Mismanagement: Some banks’ troubles stem from heaps of nonperforming loans granted to individuals who failed to repay them or to businesses who went bankrupt; Political interference: Some Italian banks’ board members and managers were appointed or hired thanks to political sponsorship rather than for their competence and capability. That led to loans being granted without enough collateral guarantees to local politicians' relatives and cronies, and to shady businesses sometimes owned by mobsters' figureheads. Italian banks begin to wobble. Italy’s big lenders have taken a beating over the last 10 years and are already in a weakened state. All of them have big stockpiles of Italian government bonds. If that debt loses value, as it would after downgrades, the banks will suffer losses, eroding their capital. The banks might then lose the trust of financial markets as investors worry about their solvency. All banks depend on a constant flow of borrowed money that they lend to customers or use to roll over debts. If that cash spigot runs dry — a so-called liquidity crisis — banks can quickly get into trouble. That happened en masse to banks in Europe and the United States during the 2008 financial crisis. Italian banks have thicker capital cushions than they did during that financial crisis, a report by Deutsche Bank said Tuesday, but “liquidity still represents a risk.” Italy suffers a credit crunch and slips into recession. Bank woes become problems in everyday life because businesses and consumers can no longer get credit. They spend less, and growth slumps. In Italy’s case, the overstretched government would not be able to pay for bank rescues. (One of the reasons Italy is in so much debt in the first place is that it has already spent huge sums rescuing its banks.) When people spend and earn less, they pay less in taxes. Government revenue drops, Rome’s ability to make debt payments suffers, and a vicious cycle begins that is difficult to stop at the nation’s borders. The EU was doomed the minute it was formed. None of these countries want to give up their identity. None want to be told how to grow their grapes or park their cars. only Germany likes it because it has basically allowed them to take over the economy of Europe without firing a shot. The euro has been called a HOTEL CALIFORNIA - you can think and say that you wanna check out, but you cannot actually leave. The euro is by far THE biggest mistake the EU has made so far. Non-competitive EU countries like Italy should be allowed to devalue their currencies, but they no longer can. It is by far the BIGGEST CRISIS that looms on the horizon for the EU. This was The Atlantis Report. Please Like. Share. And Subscribe. Thank you.











The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more