Despite the attractive economic rationale for issuing short-dated transactions, not all jurisdictions have fully embraced them. One noteworthy aspect of the credit dislocation has been the absence of any noise about the Italian banking system. A regular feature of the credit spread widening was for Italian credit to be among the first to suffer. But this time things have been different. Italian banks are little mentioned as a possible cause for concern. In fact, Italy’s banks have outperformed the financials sub-set of the iTraxx index.
One reason why Italian banks are at relative peace in the banking turmoil is that they have remained focused on domestic activity. But it’s also because of their excellent liquidity position. In the past five years Italian banks have been the most willing sellers of medium-term debt.
During the period from September 2002 to March 2006 the average tenor of Italian banks’ senior financing was 5.9 years. The contrast with Spanish and UK banks could not be more stark, where the average was just 3.5 and 3.6 years, respectively. It is ironic that having baulked at the cost of longer-term debt when liquidity was ample it will probably cost substantially more to refinance these short-dated securities now.