BS Markets | Spanish banks’ recourse to Eurosystem financing stood at almost 170 billion euros in May. Second only to Italy’s in Eurozone, whose needs amount to around 250 billion euros. In both cases these volumes represent 15% of GDP and between 6 and 7% of the size of the sector.
The latest Financial Stability Report by the Bank of Italy concludes that “risks are diminishing in the banking sector”. This could give a false sense of security. The decline of non-performing loans reflects one-off write-downs rather than an improvement in credit quality.
What is being called a “preventitive recapitalisation” of Monte dei Paschi is more than sufficient to provide the Italian and European banking sectors with some breathing space for the time being, avoiding the risk of contagion.