How is it that supposedly rock-solid germany is home to some of the world's worst banks, while profligate Italy's rank among the best? With no housing bubble or consumer-credit boom (most Germans don't even use credit cards), German banks had to work overtime to amass the ¤700 billion in impaired assets they're estimated to hold. And with few opportunities to grow business at home, they plowed a big share of Germany's massive trade-and-savings surplus into high-risk foreign assets. Among the worst offenders: the Landesbanken, seven major public banks supervised directly by politicians, for which Berlin is creating a "bad bank" to soak up as much as ¤500 billion in assets. Contrast this with Italy, long Europe's poster child of fiscal profligacy and shady dealings. According to Daniele Antonucci at Capital Economics, Italian banks like Intesa Sanpaolo and UniCredit largely stayed out of toxic assets, thanks to tight regulations and a conservative banking culture that kept them from issuing asset-backed bonds and oversize mortgages. Pre-crisis, they were also leveraged at only 18 and 11 times equity, respectively, compared with ratios of 38 to 52 for the biggest German banks. That's why Italy is the only big Western economy not to undertake a major banking bailout. If only that prudence could rub off on its government. Italy's national debt is set to hit 121 percent of GDP next year, compared with 98 percent in the U.S. and 87 percent in Germany. Some old truths hold after all.
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