Trading in bank shares is driving volatility across Italian markets Monday as investors worry that the planned resignation of Prime Minister Matteo Renzi following a resounding win for the "No" campaign in Sunday's constitutional referendum could undo much-needed financial system reforms.

Underlying risks of a government-led rescue were articulated by European Central Bank Governing Council member Ewald Nowotny who told reporters in Vienna Monday that Italy might have to spend public money to stabilise some of its lenders.

"The difference between Italy and other states such as Germany and Austria is that, until now, in Italy there has not been any significant state aid or state takeovers," Nowotny, who also heads Austria's central bank, said. "It therefore cannot be ruled out that it will be necessary for the state to take stakes (in banks) in some way."

Italy's benchmark FTSE MIB index has swung in and out of positive territory throughout the session as investors grapple with the implications of Renzi's planned resignation and what it could mean for the country's banking sector. 

The FTSE Italia All-Share Banks Index fell 2.4% to 7,883.29 points by 11:00 GMT, led by a 4.6% fall in shares of UniCredit SpA (UNCFF , the country's biggest lender, to €1.99 each to lead bank stock declines, but the lack of investor panic is notable in a market that continues to stagger under at least €360 billion in non-performing loans. 

Monte dei Paschi di Siena (BMDPY , the country's third biggest lender, was down 1.2% to €19.58 each while Intesa Sanpaolo (ISNPY  fell 1.6% to €2.10 Banco Popolare di Milano (BPMLY   shares were also quoted 4.6% lower at to €1.89.

European Economic Affairs Commissioner Pierre Moscovici told reporters in Brussels Monday that he was confident that Italy "has the means to address the situation" and that the current turmoil would not trigger a broader EU political crisis.

Investor reaction was similarly ordered in the bonds markets, where benchmark 10-year Italian bonds, known as BTPs, traded 8 basis points higher at 1.98%, taking the extra yield, or spread, that investors demand to hold those bonds against triple-A rated German bunds to 1.67%, just 3 basis points wider than Friday's closing level.

Standard & Poor's also weighed in Monday, saying Renzi's decision to step down would not have an immediate impact on the country's BBB- credit rating.