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Sunday, January 19, 2014

The Banking Crisis Is Moving North!

Greece, Cyprus and Spain have been at the forefront so far as regards crises of their banking sectors. However, what we have seen there may appear as a tempest in a teapot once the ECB stress tests of 124 European banks are completed in the second half of this year.

Greece, Cyprus and Spain again? Forget it! It's may well be Germany, France and Italy. Those countries are much larger than Greece, Cyprus or Spain. Their banking sectors are, too. And so are their problems. Wait a minute! Haven't those banking sectors been bailed-out through the various 'rescue financings' and ECB bond purchases? Yes, they have been but it appears that there is a lot more!

This is what a German and an American professor say after having completed a research of 109 of those 124 banks. They come to the conclusion that, in sum, these banks need fresh capital of 770 BEUR! Top rank is taken by the French banking sector which allegedly needs 285 BEUR in fresh capital. Germany is in second place with 200 BEUR. Allegedly, ECB authorities see it in a similar way.

This is going to end in one of two ways: (a) either the stress tests will be performed objectively and free of any political pressure; or (b) Germany, France and Italy will exert all the political pressure they can in order to 'massage' the objective results.

Why is it that I think it will be the latter?

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