Capital crunch scare wipes 40 billion euros from Italian banks


By Danilo Masoni

MILAN (Reuters) – Italian banks have lost nearly 40 billion euros ($45 billion) of market capitalization since May, with small and mid-sized lenders worst-hit by a sell-off on concerns that Rome’s budget crisis will lead to a capital crunch in the third-largest euro zone economy.

Faced with the government’s unwillingness to accommodate European Union demands for fiscal discipline, investors have been dumping Italian government bonds, which account for about 10 percent of Italian banks’ total assets. That has forced lenders into costly write-downs, lifted funding costs and darkened their profit outlook.

The hefty loss in market capitalization comes as the euro zone banking watchdog releases results of its latest stress test of European lenders, with Italian banks under the greatest scrutiny.

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