Some Italian banks may have to turn to investors for cash if the yield paid by them on Italian bonds over German bunds crosses a certain level, Banca D'Italia SpA Deputy Director General Luigi Federico Signorini told a parliamentary hearing, Reuters reported.
The difference in the 10-year bond yields between Italy and Germany has increased to more than 300 basis points, up from 130 basis points in May, after the new anti-establishment government's spending plans leaked.
"There are [spread] levels that may force some banks to tap markets [for cash]," Signorini said.
The European Union has expressed concerns over Italy's plan to increase its 2019 fiscal deficit to 2.4%.
Signorini added that the falling value of government bonds held by Italian lenders could force them to squeeze lending given the potential impact on their capital levels, according to Reuters.
Italian government bonds sold off Oct. 8 after the European Commission issued a warning to Italy's governing coalition over its budget plans for the next three years.
On an average, 10% of Italian banks' total assets consist of domestic bonds, according to the report.