The Bank of Italy published Financial Stability Report No. 1-2025, concluding that the US administration’s early-April announcement of new tariffs triggered global market turbulence and weaker growth expectations, raising risks to financial stability even though market strains eased in subsequent weeks. Spillovers were visible in Italy alongside other major European countries. Early-April tensions in Italian markets were most evident in higher volatility and sharp declines in equity and corporate bond prices. In government bonds, the ten-year Italian-German yield spread has fallen since last autumn despite increased volatility, and liquidity conditions remain good even as trading declined in April. The report assesses real estate-related risks as not high, with house prices rising in the second half of 2024 and commercial property prices flat, and it sees household risks as limited amid higher financial wealth and a lower debt-to-income ratio, although a weaker economy could weigh on finances. By contrast, firms’ profitability could fall further, particularly in sectors exposed to trade tensions, and debt-servicing capacity is showing signs of deterioration, especially in construction. Conditions in the banking system are described as stable, with high profitability and capital in the second half of 2024 and balanced liquidity after TLTRO III repayments, while cyber and operational risks require close monitoring. The insurance sector is reported as liquid and well-capitalised, with a European-wide stress test confirming resilience, and asset management risks are considered limited despite falling fund assets due to market price declines and moderate outflows immediately after the tariff announcement. Special-focus sections examine crypto-asset market trends and regulatory developments in Europe and the United States, the uptake of certificates and their potential for heavy losses in adverse scenarios, less significant banks’ use of government guarantees to support corporate lending and Bank of Italy measures addressing weaknesses in related management and control systems, banks’ exposures to sectors most vulnerable to trade tensions, and the introduction of insurance requirements for Italian firms covering damage directly caused by natural disasters and catastrophes.
Bank of Italy 2025-04-29
Bank of Italy Financial Stability Report flags higher risks after US tariff shock while Italy’s financial system remains broadly stable
The Bank of Italy's Financial Stability Report No. 1-2025 highlights that new US tariffs in early April caused global market turbulence and weaker growth expectations, impacting financial stability. Italian markets saw increased volatility and declines in equity and corporate bond prices, though government bond spreads improved. The report notes stable banking conditions, limited household risks, and potential profitability declines in trade-exposed sectors, while emphasizing the need to monitor cyber and operational risks.