A spike in Italy’s bond yields has put the country’s banks under renewed pressure, raising the specter of capital shortfalls just as challenging refinancing deadlines near.

Domestic government bonds account for 10 percent of Italian banks’ total assets, making them vulnerable to a rise in Rome’s debt costs under the anti-austerity government.

Caught in the bank-sovereign “doom loop,” Italian banks replaced fleeing foreign investors during the euro zone debt crisis of 2011-2012, buying up Italy’s bonds. They similarly stepped up purchases of domestic debt in May and June during a market sell-off of Italian assets, before lowering them in August as prices steadied.

But as the yield premium Italian bonds pay over safer German Bunds rose, banks lost on average 40 basis points of their core capital in the second quarter and another 8 bps in the third, analysts say.

When the new coalition’s spending plans first emerged in mid-May, the Italian-German spread was just 130 bps. It climbed above 300 bps this week after the government unveiled deficit goals that increase the borrowing needs of a country that has the world’s third-largest public debt pile.

An increase to 400 bps would force some lenders to tap investors for cash, the head of the Italian traders’ association Assiom Forex, Luigi Belluti, warned last week.

Italy’s third-largest bank Banco BPM was among the worst-hit in the second quarter, losing precious capital it needs for a bad loan clean-up. Capital erosion also complicates turnaround efforts at Monte dei Paschi di Siena , bailed out by the state last year.