Italy's banking crisis has long been brewing, and the markets appear to be taking it seriously for the first time since European Central Bank President Mario Draghi defused the last market panic by promising to do "whatever it takes to save the euro" in mid-2012.

Either way, the market sell-off could seriously damage Italy's economy. New regulations brought in at the start of the year heighten the risk of a bank run because investors and depositors must now bear the pain of an Italian bank going bust. This is a strong incentive for a bank's depositors and investors to move their funds elsewhere if they believe the bank is in danger (sentiment plays a role again), and there are reports that Monte dei Paschi depositors are doing just that.

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