Why a Full-Blown Banking Crisis Is Inevitable

Thursday, December 22, 2016
By Paul Martin

December 21, 2016

Italy is on the verge of a massive banking crisis.

You’ve probably heard that Italian banks are in serious trouble. They’re sitting on more than €360 billion worth of non-performing loans (NPL). These are loans where the borrower has stopped paying.

According to Bloomberg, the NPL ratio for five of Italy’s biggest banks is more than double that of the average European bank.

• Italian bank stocks have also nosedived this year…

UniCredit, Italy’s biggest bank, is down more than 45%. Banco Popolare, another major Italian bank, is down 74%. Banca Monte dei Paschi di Siena, Italy’s third biggest bank (and the oldest surviving bank in the world), has plunged 87%.

This is a serious red flag. After all, we’re talking about the cornerstones of Italy’s banking system. And, right now, these stocks are trading like a banking crisis is around the corner.

In fact, that crisis may have just begun…

• On Monday, Italy’s government said it’s going to bail out its troubled banks…

A “bailout” is when a government injects money into its banking system to keep it from collapsing. If the term sounds familiar, it’s because the U.S. government bailed out several “too big to fail” banks during the 2008 financial crisis.

he Financial Times shared the details of the bailout yesterday:

The Italian government has asked parliament to authorise up to €20bn to prop up the country’s most fragile banks, as it prepares to mount a possible state rescue of Monte dei Paschi di Siena, its third-largest lender, by the end of the week.

• Monte dei Paschi is Italy’s most troubled bank…

About 35% of its loans are non-performing. It has about five times as many bad loans as the average European bank.

This morning, the bank warned that it could run out of cash within four months. Previously, representatives of the bank said it had enough cash to last 11 months.

Monte dei Paschi is running out of time. And a bailout looks like the only thing that can keep it from failing. There’s just one problem…

• A bailout won’t actually fix Italy’s broken banking system…

The Rest…HERE

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