European Banks Under Pressure as Italian Referendum Looms

European banking stocks are mostly lower Monday as fears mount of a failure in Italian banks ahead of Sunday’s referendum.

Italians will vote next week on whether or not to reform the country’s constitution, with Prime Minister Matteo Renzi vowing to step down if the proposal is rejected.

Shares of Royal Bank of Scotland (RBS), Barclays (BCS), Lloyds Banking Group (LYG), Banco Santander (SAN), Deutsche Bank (DB), Credit Suisse (CS) and UBS (UBS), were all trading lower on the New York Stock Exchange, while Italian banking stocks including Banca Monte dei Paschi, Banco Piccolo Credito Valtelline and Banco Popolare dell’Emilia are all sharply lower on the Borsa Italiana.

Among changes proposed by Renzi is a reduction in the role of the senate and transfer of power to the central government from regional governments. If the referendum fails and Renzi steps down, the political uncertainty that could will put at risk efforts to recapitalize Italian banks. This could cause as many as eight Italian banks to fail, risking contagion across Europe.

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