The Bank of England is sounding the alarm on Italy's banking system
Published on Wednesday morning, the report sheds light on the areas of the global financial system and broader economy the BoE sees as the biggest causes for concern.
Italy gets several mentions.
There are €360 billion in impaired loans in the Italian banking system, compared to €225 billion in equity on their books.
In April the government was forced to rally bank executives, insurers, and investors into putting €5 billion (£4.2 billion, $5.57 billion) behind a rescue fund for its weakest banks. The Atalante fund is designed to buy so-called bad loans from lenders and invest in their shares in the hope that the re-energized banks will lend more to businesses and spur growth.
Here are the key extracts from the Bank of England's analysis of the situation (emphasis ours):
"Challenges also remain to the resilience of the euro-area banking system. Price to book ratios are very low, including in Italy, where non-performing loan rates are high relative to provisions. Uncertainty about potential fines for past misconduct and concerns about the longer-term viability of business models are also weighing heavily on the valuations of some banks across the continent."
"In some cases, this could reflect concerns over asset quality and perceptions of non-performing loans yet to be provisioned for. In Italy, for example, non-performing loans exceed total provisions and common equity Tier 1 (CET1). Uncertainty about potential fines for past misconduct and concerns about the longer-term viability of business models are also weighing heavily on the valuations of some banks across the continent."
Almost all international attention being trained on Italy and Prime Minister Matteo Renzi currently is focused on the referendum.
This coming Sunday, Italy will vote on a series of changes to the way the country's institutional frameworks are structured. The referendum is being flagged as the final big political risk event of a year that has seen Britain vote for Brexit, and the USA choose Donald Trump as its next president.
Prime Minister Matteo Renzi's referendum, however has pushed attention away from the troubling state of Italy's financial sector, where the world's oldest bank, Monte dei Paschi di Siena is a cause for particular concern.
Things could end up even worse come next week. Eight Italian banks risk collapse in the coming months if the nation votes "no" to, or against, constitutional changes proposed, according to officials and senior bankers cited by the Financial Times on Sunday
The world's oldest bank, Monte dei Paschi di Siena, along with Popolare di Vicenza, Veneto Banca, Carige, Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara could all end up at risk if market turbulence prevails in the aftermath of a "no" vote.