European Banking Crisis

There is intense resistance building against the stricter new rules on bad loans among the European banks. This will hit Italy hard and may push off the edge more than one Italian bank. With the elections coming next year in Italy, the banking rules may be the straw that breaks the back.

The background to the dispute is the demand of the ECB’s banking supervisor that banks must withhold higher reserves for the default-prone loans in their portfolios. The crisis stems from the fact that as taxes have increased, the economy has declined. The total bad loans in the Eurozone add up to about €844 billion euros. About 25% of this figure is concentrated in Italian banks.

A good stiff wind may blow over the European banking system