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Structured products: Struggling to structure in Italy

Italian insurers suffered badly from the Lehman bankruptcy thanks to investments in structured notes. The result is a regulatory shake-up to fundamentally change the way structured products are sold and distributed. John Ferry reports.

AT FIRST IT looked as if Italy’s financial sector might see out the banking crisis in relatively good shape. Italian regulators have always had a reputation for being more interventionist and prescriptive than their liberal-minded counterparts in such countries as the UK, something that in the past has made bankers and regulators operating in northern Europe look down their noses at the supposedly less than progressive Italians. But that more conservative approach meant that when the banking crisis came the Italian market had more restrictive lending and investment practices than other European countries. The result was that when the sky started to fall in late last year, it was the Italians who suddenly looked like the enlightened ones.

While banks in the rest of Europe and the US failed or had to accept cash injections from their governments to stay afloat, Italian banks managed to keep going independently. Indeed, to date no Italian institutions have closed or been bailed out. As noted in the Organization for Economic Cooperation and Development’s Economic survey of Italy 2009: "Italian banks are less exposed to high-risk products than those of other large countries, certainly as originators but also as investors.

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