How Brexit opened up the Pandora’s box of Italy’s banking malaise

Andrea Lagna, Loughborough University

Brexit has triggered a financial chain reaction that has also exposed the problems of the Italian banking system. The UK’s decision to leave the EU made investors fearful that the union would face a new crisis or even break up. This led to a swift withdrawal of their funds from the most fragile sections of Europe’s financial markets.

Italian banks are one of these areas. The graph below shows the steep fall of Italy’s FTSE Italia All-Share banks index following the UK’s referendum result.

The main problem with Italy’s banks is that they are swamped with what are known as non-performing loans...