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Brexit's banking shock spreading?

Friday, July 08, 2016 - 01:43

Along with Italy's banks, Portugal's are now attracting attention from economists worried over high levels of debt and low levels of capital. Kirsty Basset reports on the growing conviction, for some, that another financial crisis is brewing.

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Italian banks are under even more pressure, following Britain's decision to leave the EU. Confidence has sunk, and banking shares tumbled on concerns over bad loans worth around 360 billion euros. Italy has been in talks with the European Commission to come up with a plan to recapitalise its banks with public money, without breaching EU rules on state bailouts. (SOUNDBITE)(English) BEN KUMAR, INVESTMENT MANAGER, SEVEN INVESTMENT MANAGEMENT "The Italian bailout fund is not big enough to contain the Italian banking system. So if something does go wrong, and majorly wrong, the ECB will have to step in and I think we will see fears of a financial collapse in the eurozone come back to light." The chief of the Bank of Italy says public money should be used to help Italy's banks. And that while the financial system is 'full of risks,' the banks themselves are 'sound.' Bank of Italy Chief Ignazio Visco graphic "Italy's entire banking system doesn't face emergency, many bad loans are held by financially sound banks." It's not just Italian banks - Portuguese banks are also struggling with bad debts, and need more capital. Officials say their situation is as critical. But some analysts believe Portugal's banking sector is more resilient. (SOUNDBITE)(English) BEN KUMAR, INVESTMENT MANAGER, SEVEN INVESTMENT MANAGEMENT "I think the Portuguese banking system is, like I say Portuguese banking system, much smaller. The government could feasibly bail the Portuguese banking system out if needed. In Italy, that's not the case." Last week, German Finance Minister Wolfgang Schaeuble suggested Portugal may need another international bailout, but other officials say talk has focused more on Italy.

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Brexit's banking shock spreading?

Friday, July 08, 2016 - 01:43