Italy's Banca Monte dei Paschi di Siena, the world's oldest bank, today unveiled a loss of €4.69 billion for 2011.
It said this was due to "extraordinarily difficult" conditions after making a profit in 2010.
The bank was founded in 1472 and had posted a profit of €985m in 2010.
It said it was hit by "a progressive slowdown in economic growth and an exacerbation of the sovereign debt crisis."
The bank said last year had seen "an abrupt increase in credit spreads and closure of interbank and institutional markets, triggering at the same time a negative spiral for both stock prices and Italian government bonds''.
"This scenario strongly affected the operations of the entire banking industry and had significant repercussions on the group's balance sheet," it added.
The Italian economy entered recession in the second half of last year and Prime Minister Mario Monti's is struggling to implement budget cuts and structural reforms to keep public finances in check and boost growth.
The bank said it had been forced to make "significant value adjustments due to impairment of goodwill" for a total of €4.48 billion in order to adapt to current market conditions and prepare for "foreseeable future scenarios."
"This reduction in value has effects on the accounting items but has no impact on the bank's cash flow, liquidity, capital ratios, nor clearly does it have any influence on its prospective profitability and reliability," it said.
Banca Monte dei Paschi di Siena is the latest in a long series of leading banks to announce large losses for 2011. The country's leading bank, UniCredit, earlier this week announced a loss of €9.21 billion for last year.