The Bank of Italy published Financial Stability Report No. 2-2025, finding that risks to Italy’s financial stability from domestic factors remain limited, while risks linked to international instability are not negligible. The report notes a sharp rise in riskier asset prices and a return to very low volatility in international markets since last spring, increasing the risk of sudden corrections if valuations move away from fundamentals. The macrofinancial environment is assessed as broadly unchanged from last April, with the spread between Italian and German ten-year government bonds narrowing further to levels seen before the previous decade’s sovereign debt crisis. Conditions are supported by a moderate recovery in credit, resilient labour income, low unemployment, a prudent fiscal policy stance, low private debt and a positive net international investment position, although growth prospects remain muted. House prices rose in the second quarter and commercial property prices were broadly unchanged, with no overall signs of overvaluation. Household financial risks remained low, while firms were described as generally in good condition but still exposed to uncertainty around tariffs and geopolitical conflicts. The banking system is characterised as sound, with high profitability and capitalisation in the first half of the year and no deterioration in credit quality, but with forward-looking risks from a declining net interest margin, potential asset-quality pressures and continued exposure to cyber and operational threats. Five special-focus boxes cover the evolution of stablecoin regulation in Europe and the United States and risks from uncontrolled development, the limited effect of hydrogeological exposure on firms’ creditworthiness and the role of insurance coverage, stress-testing results for less significant banks, developments in the European framework for managing banking crises with a focus on small and medium-sized banks, and the crowdfunding market in Italy alongside the Bank of Italy’s supervisory focus on sound and prudent management by service providers.
Bank of Italy 2025-11-21
Bank of Italy Financial Stability Report flags higher global market correction risk while judging domestic Italian stability risks limited
The Bank of Italy's Financial Stability Report No. 2-2025 highlights limited domestic financial stability risks but notes significant international instability concerns, with rising riskier asset prices and low market volatility posing correction risks. The macrofinancial environment remains stable, supported by narrowing bond spreads, moderate credit recovery, and a sound banking system, though growth prospects are muted. Special-focus areas include stablecoin regulation, hydrogeological risks, stress-testing for smaller banks, European banking crisis management, and Italy's crowdfunding market.