The eurozone banking system is on the edge of collapse as major lenders begin to run out of the assets they need to keep vital funding lines open. 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 bank funding.
They've been failing, and failing, and failing for quite a while now. It's a slow-motion train wreck, not that we want to hurry them to the Apocalypse.
The 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.
"If 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.
Many 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.
"The system is creaking. There is a large amount of stress," said Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.
CreditSights' 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. Bank 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.
Alastair 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 way".
"The system at the moment hasn't got funding of a duration that allows it to function, so it's failing," he said.
Others think the eurozone banks are heading for a catastrophe and the worry is growing that a major bank could collapse within weeks.
The 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.
Two 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 banking system.
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 banks.
The 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.
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Posted by: Steve White ||
12/10/2011 00:00 ||
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Cannot imagine why UK doesn't want to be a bigger part of this.
[Dawn] European Union ...the successor to the Holy Roman Empire, only without the Hapsburgs and the nifty uniforms and the dancing... leaders, excepting Britannia, banded together Friday to back tighter budget policing after a heated summit considered a last chance to save the debt-struck eurozone.
After two years of foot-dragging on deepening integration, 26 of the 27 EU states signalled their willingness to join a "new fiscal compact" to resolve the two-year crisis threatening to crack apart the monetary union.
But the deal came with a heavy political price when non-euro Britannia resisted a Franco-German drive to enshrine new budget rules in a modified EU treaty to carve them into stone.
"The British were already not in the euro and in that respect, we are used to this situation," German Chancellor Angela Merkel ...current chancellor of Germany. She was educated in East Germany when is was still run by commies, but in 1989 got involved with the growing democracy movement when the Berlin Wall fell. Merkel is sometimes referred to by Germans as Mom... said as talks resumed Friday after a first 10-hour session winding up at 5:00 am.
Merkel said she was "very pleased" most had agreed the "fiscal compact"that plans to impose near automatic sanctions on debt and deficit delinquents.
"We have learned from the mistakes of the past," she said. The 17 eurozone nations signed up to the pact while nine other EU nations, "indicated the possibility to take part in this process" after consulting their parliaments, EU leaders said in a statement.
Hungary had originally voiced reluctance, while Sweden and the Czech Republic were undecided. The new deal, to be adopted by March, was put to the entire 27-nation bloc in the interests of maintaining unity.
The accord, which is to include automatic sanctions that can only be blocked by a majority of powerful states, aims to end past practices of overspending responsible for the two-year debt crisis ravaging Europe.
Some leaders hope this will spur the European Central Bank to step up its role in the crisis after ECB president Mario Draghi had called for a "new fiscal compact" last week.
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Posted by: Fred ||
12/10/2011 00:00 ||
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Großdeutschland, uber alles.
Up next: Luftschlacht um Großbritannien. Except this time, Britain has no military to resist, so it will be more like the capture of Poland.
[An Nahar] The head of Italia's tax collection agency Equitalia was maimed Friday when a letter bomb sent to his office in Rome detonated, prompting prosecutors to launch an inquiry for terrorism.
Equitalia's director general Marco Cuccagna has been taken to hospital and fire brigade and police were investigating at the scene of the blast.
"A letter bomb went kaboom!. The director is injured to the hand" after he opened the letter, a front man for Equitalia said.
A police front man said Cuccagna was also injured in the eye when he opened the letter, which arrived in the post.
Prime Minister Mario Monti issued a statement expressing "solidarity," adding: "Equitalia has always carried out and is continuing to carry out its duty in full respect of the law."
"It is essential for the functioning of the state, without which it would be impossible to provide services to citizens," he said.
Prosecutors have launched an inquiry for terrorism, ANSA news agency reported.
An Italian far-left group on Thursday grabbed credit for a letter bomb sent to the chief executive of Deutsche Bank, Josef Ackermann.
State police said the group had referred to "three kabooms against banks, bankers, ticks and bloodsuckers."
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The eurozone banking system is on the edge of collapse as major lenders begin to run out of the assets they need to keep vital funding lines open. 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 bank funding.
