Eurozone Banking System Teetering On Total Collapse
at BarCap say that even if the European rescue funds were able to raise
€1 trillion of funding this would only meet the needs of the Italian
and Spanish government and banks.”
By Dell Hill via The Telegraph
paint a grim picture for at least three European countries - France,
Italy and Spain - as efforts to bring the debt crisis under control only
seem to be making it worse. A domino effect is predicted, should any
one of those three countries default.
“Senior analysts and traders
warned of impending bank failures as a summit intended to solve the
European crisis failed to deliver a solution that eased concerns over
European Central Bank admitted it had held meetings about providing
emergency funding to the region's struggling banks, however City figures
said a "collateral crunch" was looming.
anyone thinks things are getting better then they simply don't
understand how severe the problems are. I think a major bank could fail
within weeks," said one London-based executive at a major global bank.
banks, including some French, Italian and Spanish lenders, have already
run out of many of the acceptable forms of collateral such as US
Treasuries and other liquid securities used to finance short-term loans
and have been forced to resort to lending out their gold reserves to
maintain access to dollar funding.
system is creaking. There is a large amount of stress," said Anthony
Peters, a strategist at Swissinvest, pointing to soaring interbank
weekly funding report said the ECB had effectively become the central
clearer for the region's banks as lenders are increasingly distrustful
about funding one another.
deposits with the ECB now stand at their highest level since June 2010
at €905bn (£772bn) as lenders withdraw deposits held with their peers
and put them into the central bank. At the same time, banks in major
eurozone countries such as France and Italy have become increasingly
reliant on central bank funding. This follows the trend seen in smaller
countries like Ireland where lenders have effectively becomes
taxpayer-funded "zombie" banks.
Ryan, a banks analyst at UBS, said there would be "no Lehman moment" –
or single catastrophic event – for the European banking sytem, but added
that without a full backstop of bank liabilities by governments the
system would "struggle to finance itself in the next year in a durable
"The system at the moment hasn't got funding of a duration that allows it to function, so it's failing," he said.
think the eurozone banks are heading for a catastrophe and the worry is
growing that a major bank could collapse within weeks.
results of the fourth round of European Banking Authority (EBA) stress
tests conducted in just under 18 months pointed to a €115bn capital
shortfall in the eurozone financial system, with German banks showing
the most notable deterioration in their core capital ratios.
Moody's on Friday downgraded France's three largest banks, BNP Paribas, Credit Agricole and Societe Generale
in light of what the US rating agency said were "liquidity and funding
constraints". The banks' downgrade came despite Moody's acknowledging
the three lenders could depend on a higher level of French taxpayer
support in future.
weeks ago, rumours abounded that it was the near failure of a major
French lender that had been the trigger for a massive co-ordinated
intervention by the world's largest central banks to shore up the
fear is the European authorities do not have the financial firepower to
deal with the banks' problems. Analysts at BarCap say that even if the
European rescue funds were able to raise €1 trillion of funding this
would only meet the needs of the Italian and Spanish government and
European banking sector's problems are being exacerbated by a wave of
asset sales as lenders look to dramatically shrink their balance sheets.
UBS estimates eurozone banks could sell off between €3.7 trillion and
€4.5 trillion of assets in the next three years.