Italian bank shares are down 56% this year.

Monte dei Paschi is the poster child of bad performance hitting record lows after the ECB told the bank to shed more assets.

The Financial Times reports Bad-Debt Warning Triggers Fresh Fears for Italian Banks.

The world's oldest bank, which has been cleaned up twice by Italian authorities, has been told by the European Central Bank it needs to shed another €10bn in bad loans, sparking fresh worries over the health of the troubled Italian banking sector.

Shares in Monte dei Paschi di Siena, founded in 1472 and Italy's third-largest lender, dropped 13 per cent on Monday to an all-time low after it disclosed the ECB warning, dragging down all of the country's largest lenders.

The FTSE Italia All-Share Banks index was down 3.7 per cent. It has lost nearly 56 per cent of its value this year. All told, the sector is weighed down by about €360bn in non-performing loans, by far the largest in the eurozone.

Monte dei Paschi also faces stress-test results due to be published at the end of July, according to senior bankers.

Monte dei Paschi said the ECB had demanded that gross non-performing loans be cut from €46.9bn at the end of 2015 to €38.9bn at the end of 2017 and €32.6bn by the end of 2018.

On a net level, the draft letter from the ECB said non-performing loans needed to be reduced from €24.4bn in 2015 to €18.4bn in 2017 and €14.6bn by 2018.

Non-Performing Loans - How Big Are they?

On April 12, I reported Italy Concocts €5 Billion "Atlas" Rescue Fund to Cure €360 Billion in Non-Performing Loans; At Gunpoint

On June 30, in Italy's Zombie Banks on Death Bed, Bail-Ins Coming? I quoted the Financial Times on €200 billion in nonperforming loans.

"Concerns are focused on the banking sector's €200bn of gross non performing loans, known as 'sofferenze', of which about €85bn have not yet been written down."

Now the Financial Times once again says €360 billion. Is the problem €200 billion or €360 billion? Or is it even more?

Earlier today I commented on a Merkel-Renzi Showdown in which Italy threatens to defy Merkel and Brussels over bank bailouts.

Clearly the ECB is in the the picture as well.

Italian banks are insolvent. When does this admission see the light of day, and via what mechanism?