The Bank of Italy published its Financial Stability Report (No. 1/2025), concluding that the early-April announcement of new US tariffs triggered a surge in uncertainty and international market stress that has increased financial-stability risks, even though tensions eased in the following weeks. In Italy, the report describes a broadly stable environment despite a sharp, temporary worsening in financial-market conditions. In early April, volatility rose and equity prices and private bond prices fell sharply. The yield spread between 10-year Italian and German government bonds became more volatile but narrowed compared with last autumn, and government bond market liquidity remained good despite lower trading in April. Housing prices continued to increase in the second half of 2024 while commercial property prices were unchanged, and real estate is not assessed as a high-risk source for financial stability. Household risks remain limited, supported by higher financial wealth in 2024 and further declines in debt relative to disposable income, although a weaker cycle could weigh on finances. For corporates, profitability could decline further after weakening in 2024, particularly in sectors most exposed to trade tensions, and debt-servicing capacity shows some deterioration, notably in construction and to a lesser extent in industry. Banks’ profitability and capitalisation stayed high in the second half of 2024 and liquidity remained balanced after repayment of TLTRO3 operations; a sharp rise in global trade restrictions could worsen credit quality, but the system’s capital strength, including the systemic risk buffer introduced last year, provides a larger cushion, while cyber and operational risks remain an area requiring close attention. In insurance, renewed growth in life-premium collection improved liquidity, profitability was stable and capitalisation remained high, with a European stress test indicating capacity to withstand adverse shocks; Italian mutual funds recorded positive net inflows in the first quarter of 2025 but assets fell due to market price declines and saw moderate outflows after the initial tariff announcement. Five thematic boxes cover crypto-asset market developments and regulatory evolution in Europe and the United States, the diffusion of certificates products and their valuation and loss risks, the use of public guarantees by less significant Italian banks to support corporate lending and supervisory initiatives addressing weaknesses in related management and control systems, an initial assessment of banks’ exposures to sectors most vulnerable to trade tensions, and the introduction of compulsory insurance coverage for Italian firms against direct damage from natural and catastrophic events.

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