If you are not worried about our banking crisis, you should be. Here is a compendium of information.
El-Erian: European Banks are in Major Trouble
Pimco’s Mohamed El-Erian says Europe could be thrown into a banking (NYSE:KBE) crisis. “(There) are signs of an institutional run on French (NYSE:EWQ) banks. If it persists, the banks would have no choice but to de-lever their balance sheets in a very drastic and disorderly fashion,” reports the Financial Times.
“There has been a significant increase in the financial requirements of international intervention,” El-Erian said. “You need a lot more firepower in order to be a circuit breaker. Look at how much the ECB has put in and ask yourself the question: has it created a circuit breaker? The answer is no, even though the amounts involved have been massive.”
Read more in the article.
Europe’s banks could be in big trouble
On August 28th the IMF’s new chief Christine Lagarde was bombarded with criticism after she insisted that Europe’s weakest banks need urgent recapitalization in order to curb contagion in the euro crisis. Her main critics were ECB president Jean-Claude Trichet and European Commissioner for Economic and Monetary Affairs Olli Rehn, who countered that Europe’s banks do not need liquidity or fresh capital. However, developments over the past month overwhelmingly support Ms Lagarde’s assertion. In both the peripheral and the core countries, European banks could really be in big trouble.
Mr Trichet and Mr Rehn’s main argument why European banks are reasonably healthy relies mainly on the stress tests that were conducted just over a month ago by the European Banking Authority (EBA). According to these stress tests, only nine out of 91 banks would see their Core Tier I Capital ratio fall under 5% under the stressed scenario. Mr Rehn has repeatedly highlighted that those banks that failed the stress tests are in the process of raising their capital levels by October anyhow. However, the assumptions made in the adverse scenario of the stress tests were a joke. For the most part, the adverse scenario conditions have already come to fruition and in some cases they have been surpassed. Furthermore, the banks did not reveal any of their risk weightings, making the stress test results difficult to interpret.
There have been several developments over the past month that support Ms Lagarde’s insistence that European banks need to be proactively recapitalized. Just looking at data from this week alone offers cause for concern. Bank stocks led the collapse of European stock indices on Monday, falling by 5-12%. (Deutsche Bank shares fell by 8% in a single day, Credit Suisse by 8.8% and UniCredit by 7.4%). Also on Monday, the ECB reported that it holds €166.8bn in its bank deposit facility, up by €15bn compared with the previous week and the highest amount since August 2010.
Read more in the article.
Stress Test Reveals European Banks Need More Capital
European regulators on Thursday told many of the region’s biggest banks, including Deutsche Bank and Commerzbank, to raise more capital as signs mounted that the European sovereign debt crisis might worsen.
With the region’s leaders gathering in Brussels in their latest bid to shore up the euro, the European Banking Authority announced that over all, banks needed to raise 114.7 billion euros ($152.7 billion) in the event the debt crisis was not resolved soon. That was more than the estimate of 106 billion euros in October.
The banking authority’s assessment showed that banks in Germany, Italy and Spain would have to raise more capital than previously thought, while banks in France had all they needed. In all, the stress tests showed that 31 of 71 banks needed stronger reserves.
Read more in the article.
According to Bob Chapman at Infowars.com:
In Europe the past few weeks have been disastrous. Confidence continues to erode as the plunge protection team holds up markets and attacks gold and silver. Greece continues in a standoff until there are February elections. If there are no elections nothing will ensue in a big way. Greece refuses to reduce sovereign debt and take any more austerity cuts. What all these masters of the universe don’t understand, or want to understand, is that Greek debt, in fact almost all debt, is unrepayable. What all governments have done by raising massive amounts of debt has frozen the productive private sector out of the market. The exceptions are AAA rated companies, almost of which just happen to be Illuminist run. Government spending is generally non-productive.
Not only are European banks shockingly near collapse, but the outlook for American banks is also frightening.
Number of Problem Banks in America Nears 1,000
Two and a half years after the bankruptcy of Lehman Brothers, the number of banks that are still facing serious financial problems continues to rise, and is now nearing the four digits. According to Calculated Risk, the number of banks in the U.S. that are in danger of failing hit 985 last week, the highest level since the beginning of the financial crisis. That’s up from 935 at the beginning of the year, just three months ago. When Calculated Risk began compiling its list of troubled banks back in mid-2009, the number of banks in trouble in the US was just under 400. In a little less than two years, nearly 600 additional banks have slipped into the danger zone. (That’s on top of the few hundred that have actually failed.) And that number appears to be getting bigger.
Read more in the article.
Big Banks: Under-Capitalized, Overexposed, Opaque
The US banking sector is not healthy.
There is a fundamental misunderstanding about the Wall Street bailouts amongst the public, and quite a few policy makers at Treasury and the Federal Reserve: Somehow, they “fixed” the banking system. All it took was few trillion dollars in liquidity and a few $100 billion dollars in recapitalization, and all is now fine (I suspect some people at the Fed know the Truth).
In fact, they did nothing of the sort. The banking system was not saved; The massive injection of liquidity temporarily salved the day-to-day operations of banks, but they did not repair what ailed our financial institutions. Indeed, pouring billions into nearly identical management teams that mismanaged the risk, over-leveraged exposure, and drove banks off the cliff in the first place was an invitation for another crisis.
And that crisis now appears to be arriving. And, its our own fault.
Read more awfulness in the article.
