EFTA Document EFTA01384473

18 September 2017 Lorg•Term Asset Return Study: The Next Financial Crisis Italian banks' holdings of Italian sovereign bonds. Based on the latest Bank of Italy data, domestic Italian banks held in total E393bn of securities issued by the General Government. Of this €279bn are BTPs with the remainder primarily made up of BOTs and CTZs (bills), and CCTs (floating rate notes). By our estimates, this means that the banks hold about 2O% of outstanding Italian government debt. Since QE started this has been a prudent move for banks, but what happens when the tide turns and the inevitable sell-off starts. It's another factor to consider. If there are ever any doubts about the Government's willingness or ability to pay, the banks will be seriously exposed to a financial crisis. The reason we don't include an EU/Euro break up as one of our potential crisis triggers is largely because Italy is perhaps the first line of defense to such a scenario. If Italy's problems don't escalate dramatically in the quarters and years ahead, the EU/Euro's survival in its current form is much more likely. So we can assume that if Italy does create a crisis it will likely risk triggering an existential crisis for the economic area as a whole. Page 42 Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0084691 CONFIDENTIAL SDNY_GM_00230875 EFTA01384473