The global financial crisis first hit the large merchant banks, who earn much of their income on the capital market. The recession and sovereign debt crises then took their toll on the balance sheets of banks whose core business is lending.
Italy’s banking sector suffered a particularly sharp fall in 8  profits; the return on capital, which was about 10 per cent in the middle of the previous decade, has been virtually nil for the last five years, exceptional factors aside. At the same time, the profits of Italian banks have been eroded by heavier losses on loans and a drop in income.