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Europe
European Governments Rescue Another Failing Bank
2008-10-01
Dexia, a Franco-Belgian bank that specializes in lending to local governments, got a $9.2 billion injection of capital to stave off imminent collapse after a loss of public confidence led to a 30 percent decline in its stock price Monday, according to announcements from the French and Belgian governments.

It was the fifth time in recent days that European officials have had to respond to a crisis at one of their financial institutions, abruptly ending the confidence European officials displayed as recently as last week that their financial system was not as endangered by the troubled mortgage loans undermining the U.S. system. With the pace and scale of events seeming to quicken, the Irish government guaranteed the debt of six financial companies amid a sell-off of bank stocks, and European officials discussed possible broader action to address problems with the global financial system.
Posted by:Fred

#5  http://www.telegraph.co.uk/finance/breakingviewscom/3117263/Financial-crisis-The-tsunami-will-hit-European-banks-harder.html
Posted by: Bright Pebbles   2008-10-01 15:32  

#4  A key quote from Bright Pebbles' excellent link:

But the AIG case shows the importance of another link across financial markets, namely massive regulatory arbitrage. The K-10 annex of AIG’s last annual report reveals that AIG had written coverage for over US$ 300 billion of credit insurance for European banks.

The comment by AIG itself on these positions is: “…. for the purpose of providing them with regulatory capital relief rather than risk mitigation in exchange for a minimum guaranteed fee”.

AIG thus helped to organise regulatory arbitrage on a gigantic scale. A formal default of AIG would have had a devastating impact on banks in Europe. This explains why AIG’s problems had sent shock waves through the share prices of European banks.

For the time being the US Treasury has saved, inter alia, the European banking system, but given that AIG is to be liquidated European banks now have to scramble to find other ways of obtaining the ‘regulatory capital relief’ they appear to need urgently.
Posted by: lotp   2008-10-01 12:10  

#3  http://paul.kedrosky.com/archives/2008/09/30/how_the_us_save.html
Posted by: Bright Pebbles   2008-10-01 11:41  

#2  When the US gets the financial flu, the rest of the world catches pneumonia.
Posted by: Procopius2k   2008-10-01 09:09  

#1  Ireland has guaranteed the deposits of its six largest banks.
Posted by: Nimble Spemble   2008-10-01 08:32  

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