Only nine banks (including German bank Helaba, which refused to publish its results because it contested the EBA's methodology) failed this year’s stress tests. But while many contest the strength and validity of the stress test, it provided some interesting and surprising data.

Much of the recent comment about Europe's sovereign debt crisis has focused on Greece’s debt mountain, the need for a second bailout or the likelihood of a Greek default - controlled or otherwise; but just as pressing is whether the Greek crisis could ripple out to engulf one of Europe's biggest economies and wreak havoc on the monetary union.

If Italy were to be dragged into the crisis, it would be disastrous for the European banking system. The European Banking Authority (EBA) stress tests revealed that some of Europe's biggest banks are far more exposed to Italian sovereign debt than to Greek. 

German-banks-exposure-to-Italy
French-bank-exposure-to-Italy
UK-bank-exposure-to-PIIGS

 

And if there is concern about Greek banks holding Greek sovereign debt to the tune of 27% of Greek gross domestic product (GDP), how much more worried should eurozone leaders be that Italian banks hold domestic sovereign debt equivalent to 32% of the country's GDP? The chart below clearly shows how Italian banks' debt holdings are dominated by Italian government bonds.

Italian-banks-exposed-to-Italy

Italy came under pressure in mid-July as the government tried to pass austerity measures in a bid to calm the market. The country’s government debt is forecast to be 120% of its GDP this year. The cost of financing may rise by €3.2bn in 2011 according to economists.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter