"In today's audio you rightly mentioned the exposure of French and German banks to the periphery but Italian's are not exposed as showed by BIS numbers or EBA analysis."

And in response to a request for clarification:

"No, I was referring to the periphery (PIGS), since I do not count Italy as periphery due to the size of its economy in the Eurozone. True Italy is getting engulfed into the mess and Italian banks must be loaded with Italian debt, but watch France which, in my opinion, is in a worst state than Italy (trade balance, budget deficit, speed of debt building).

"Italian banks are mainly exposed to Germany (EUR 266 billion at the end of March and only EUR 55 billion with PIGS). I have not looked at spreads for France, but my guess is that they must have widened substantially. The main problem in Italy is, beyond its huge debt/GDP, the subdued growth since 2008 (current terms so even worth in real terms)."

Eoin Treacy's view Thank you for these two informative emails. I do consider Italy on the periphery of the Eurozone because like Greece, Ireland, Portugal and Spain it has allowed itself to become uncompetitive relative to the core. This article from Bloomberg today details Intesa SanPaolo writedowns on Greek debt.

The DJ EuroStoxx Bank Index paused somewhat today and is oversold in the short term but an upward dynamic held for more than a day or two is required to confirm more than temporary support in this area.

You are correct, French spreads are widening, which also reflects its banking sector's relative weakness in addition to the factors you mention. (Also see Comment of the Day on July 18th).