Bond common exposures drive risk across Italian financial sectors

Granular data from 2019 to 2025 show that Italian banks hold limited direct exposures to insurers and investment funds, focusing instead on household and corporate lending.

By contrast, insurance companies dominate investment fund shareholdings at 29 percent of total assets, while investment funds allocate 26 percent of their portfolios to non-financial corporation securities.

Across the entire financial system, Italian government bonds represent the primary common exposure.

They account for 11 percent of bank assets, 21 percent of insurer portfolios, and 17 percent of investment fund holdings.

This extensive asset commonality creates indirect contagion channels through price co-movements and potential fire-sale externalities, even when direct cross-sector lending remains modest.

Intragroup structures significantly distort financial interconnectedness.

Removing internal positions reduces the banking sector's in-scope assets from 87 percent to 75 percent, revealing that nearly half of interbank loans represent internal group financing rather than market activity.

Additionally, maturity analyses show that banks and insurers hold large volumes of long-dated bonds.

This maturity profile exposes both sectors to potential capital losses under rising yields, testing institutional resilience despite banks valuing most bonds at amortized cost.