Italian Banks, the Legacy of the Global Financial Crisis and the COVID-19 Pandemic : So Far so Good

We discuss whether and to what extent Italian banks will be able to support the recovery after the COVID-19 pandemic. The answer crucially depends on how the legacy of the Great Financial Crisis is evaluated. Moving from the hypothesis that the problems must be examined in the context of the entire euro area and with a medium-term perspective, we show that Italian banks are on a path of gradual recovery and that during the first year of the COVID-19 pandemic, they have also met the corporate demand for credit (with the support of public loan guarantee programs). We conclude that, so far, not only have banks not been part of the problem but, instead, they have played a crucial role in sustaining the Italian economy during the latest recession. Early evidence suggests that the pandemic crisis has also incentivized businesses in some sectors to adopt innovations that were largely under-utilized prior to the crisis, offering hope for a new phase of economic dynamism once economies reopen. However, the ability of national economies to capture these improvements depends on country specific factors, in particular, on the banks’ ability to shift the allocation of credit to the emerging and most productive companies. In this connection, we conclude that the ability of Italian banks to achieve an efficient allocation of credit is, to say the least, controversial