The economic risk trend is stable. Economic growth prospects remain modest overall for Italy, but in line with its potential given demographic headwinds and the sovereign's limited ability to support growth. Past economic imbalances have been largely absorbed and banks now have more capacity and tools to handle the somewhat higher-than-peers' credit risk they face. We also now see a stable trend for industry risk. Funding is a key strength for the Italian banking sector and improved sovereign creditworthiness should reduce volatility risk to Italian banks' access to the capital markets. Consolidation among the largest banks will further increase the structural gap with smaller players--now fewer than in the past. Italy benefits from having a large, open, and wealthy economy,
