Spanish, Italian Bank Funding Squeeze May Force Cuts in Lending

Spanish and Italian banks may have to curtail lending, threatening the European economy, as funding markets freeze amid the region’s sovereign debt crisis.

Yields on the two nations’ government bonds have climbed to records this week amid speculation European Union leaders will struggle to avert the euro area’s first default. That’s pushed up the cost of borrowing for banks including UniCredit SpA, Italy’s biggest, and Banco Santander SA, Spain’s largest.