Italy's Troubled Banks

How Italian banks built up bad loans after the 2008 crisis, the rescue of Monte dei Paschi di Siena, the world's oldest bank, and the doom loop with government debt.

Italy’s banks struggled after 2008.

Bad loans

Recessions left banks with large non-performing loans.

Monte dei Paschi

Monte dei Paschi di Siena, founded in 1472 and often called the world’s oldest bank, needed a state rescue in 2017; the state later sold down its stake.

Doom loop

Banks held lots of government bonds; when bond prices fell, banks weakened, and weaker banks needed state support: a doom loop.

Clean-up

Bad loans were sold off with the help of a state guarantee scheme (GACS).

Recovery

Higher interest rates after 2022 boosted bank profits.

The Siena bank

A bank that survived five centuries needed a government rescue after the eurozone crisis.

Thinking bank and government risks are separate

They can form a doom loop.

Key takeaways

Italian banks had many bad loans.
Monte dei Paschi was rescued in 2017.
Banks and government debt formed a doom loop.
Profits recovered after 2022.