The Eurozone’s “Doom Loop” Re-Grips Italian Banks

The contagion persists

Rigged Game

Old bad habits die hard: The dangerous relationship of mutual dependence between governments and banks.

In June, as the ECB cut back on its purchases of Italian government bonds, Italian commercial banks added to their holdings, continuing a trend that began in May, analysts at Dutch bank ABN report. Total holdings in June rose by €17 billion to €381 billion. That came on the heels of a €28 billion surge in May, which was the single largest month of Italian bank purchases of Italian bonds in history, according to Deutsche Bank

For the first time in a long time, Italian banks’ purchases of Italian bonds dwarfed those of the Eurosystem (the ECB and the national central banks of Eurozone countries), which in May and June bought a comparatively paltry €3.6 billion and €4 billion of multiyear Treasury bonds (BTPs) respectively. This happened as pressure on Italian government bonds rose following…

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