ECB’s €500 Billion Payoff Puts Italian Banks in the Firing Line

The European Central Bank is about to test the resilience of the continent’s banking industry by making lenders repay about half a trillion euros in cheap pandemic-era loans — in one go.

While the €4 trillion or so of excess liquidity sloshing around the financial system should limit the overall impact of the giant repayment, individual firms and countries could be strained, economists and analysts say. Smaller Italian lenders are the biggest concern, with Greek banks not far behind.

Italy’s outstanding borrowing under the ECB’s TLTRO program is more than the excess cash its lenders have parked at the ECB, ...