• Spreads reflect ‘remote possibility’ of a Euro breakup
• Sees need for a deposit guarantee mechanism and a single European regulator
• Italian sovereign bonds account for 1/10th of Italy’s bank activity
• Italy’s impaired loans often still generate income
• Banks must cut costs, including executive pay schemes to increase profitability
• Some Italian banks need to raise their capital bases further and need to improve management of credit risks
• Core tier 1 capital ratio of Italy’s top 5 banks is 10%