MILAN-Britain’s vote to leave the EU has produced dire predictions for the UK economy. The damage to the rest of Europe could be more immediate and potentially more serious. Nowhere is the risk concentrated harder than in the Italian banking sector.

In Italy, 17% of bank loans are sour. It is almost 10 times the level in the United States, where even at the worst of the financial crisis 2008-09, it was only 5%. Among listed banks in the euro area, Italian lenders accounted for almost half of total bad loans.

Years of lax lending standards left Italian banks ill prepared when an economic downturn sent bankruptcies soaring a few years ago. At a major bank, Banca Monte dei Paschi di Siena BMPS -13.99 % SpA, bad loans were so thick it assigned a team of 700 to handle them and created a new unit to house them . Several weeks ago, the bank put the bad-credit unit for sale, hoping a foreign partner would accelerate the liquidation.

voice Britain to leave the European Union has exacerbated the pressure on Europe’s banks in general and Italy in particular. It imperils Monte dei Paschi sales, some bankers say, and create fresh uncertainty at a time when lenders are struggling with ultralow and even negative interest rates and sluggish economic growth. Concerned

Brexit many leaders that central banks will keep interest rates lower for longer than they might otherwise in an attempt to offset the slower growth in the euro area and the UK. European bank shares slid after the vote, with those in Italy especially hurt. Shares in Monte dei Paschi is down about a third since June 23 referendum.

All this threatens to trigger a crisis of confidence in Italian banks, analysts say. Although Italy has only one bank is classified as globally significant under international banking rules-UniCredit-some analysts say bank tensions exacerbated by Brexit could threaten Italy’s stability and potentially even that of the EU.

“Brexit could lead to a genuine banking crisis in Italy,” said Lorenzo Codogno, former Director General of the Italian Treasury. “The risk of eurozone meltdown is quite clear that if Brexit concerns not immediately corrected.”

Italian banks are sitting on a heap of bad loans — and Britain just voted to throw a match onto the pile.

A full 17 percent of loans held by Italian banks have turned sour, The Wall Street Journal reports. At the height of the 2008 financial crisis that figure never exceeded 5 percent for U.S. banks. In total, Italian banks are holding on to €360 billion in impaired loans — quadruple their 2008 level.

To stabilize its financial system, the Italian government has sought the European Union’s permission to channel €40 billion of taxpayer funds into its banks. But the other EU leaders are giving Italy the red light. In deference to populist outrage over the postcrisis bank bailouts, the bloc adopted a rule in 2014 that requires a troubled bank’s stakeholders — shareholders, bondholders, certain depositors — to take a financial hit before taxpayers are asked to open their wallets.

But in Italy, an unusually high percentage of those stakeholders are individual investors, many of them elderly. These aren’t well-heeled speculators who can foot the bill by auctioning off their second yachts. When four small Italian banks fell into crisis last year, 100,000 Italian investors saw their holdings erased. A national controversy ensued following reports that a retiree committed suicide after losing €110,000 in savings. At present, retail investors hold roughly €187 billion in Italian bank bonds. If those investors see large swaths of their savings wiped out, it could take down Italian prime minister Matteo Renzi’s government.

This is where Italy was before the British went to the polls on June 23. After 52 percent of the U.K. voted to leave the EU, the nation’s financial headache has bloomed into a migraine.

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