New Italian Prime Minister Paolo Gentiloni (pictured) will have to deal with a deepening banking crisis in his country. PAimages/Domenico Stinellis. All rights reserved.
Italy is still in the midst of a severe banking crisis. Given the dimensions of the country's financial system, such a crisis, if not properly managed, could adversely affect the European banking system. To prevent this, it is important to understand the origins of the problems and, thereby, avoid a prolonged period of crisis. Despite market improvements, privatisation of Italian financial intermediaries and regulatory changes, which took place during the 1990s, the system as a whole still requires substantial improvements.
At the outset of the global financial crisis, both commercial and mutual Italian banks seemed to be solid enough to withstand the crisis adequately. Back then, finance minister Giulio Tremonti used reassuring arguments about the assumed resilience of Italian, expressing confidence in their future success. However, things gradually changed and the overall situation became increasingly difficult to manage as problems started to pile up, particularly as the crisis spread to the real economy and, subsequently, an increasing number of enterprises and households stopped paying back their loans.
