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69ers – not an out of state football team

December 12, 2011

Dec. 12 (Bloomberg) — European banks turning to their governments to raise required capital could trigger a downward spiral of declining sovereign-debt prices and further losses for the lenders.
The European banks faced with dwindling profits and unable to tap capital markets may be forced to seek government help. About 70 percent of the capital requirement falls on lenders in Spain, Greece, Italy and Portugal, countries struggling to convince the world they can pay their debts.


“If governments put money in their banks, their sovereign debt will suffer, exacerbating their problems,” said Karel Lannoo, “Then the banks’ losses will rise because they hold the government debt. That’s a vicious cycle. It’s hard to know which one to stabilize first, the sovereign bonds or the banks.

It’s an incestuous sixty nine with Govts lending to their banks while the banks are lending to their Govts simultaneously. This is fine and dandy (some may say enjoyable) as long as it lasts. Party’s over when someone goes bust and the other is left to clean up the mess.

4 Comments leave one →
  1. December 13, 2011 7:25 pm

    Pretty gross – nice tags though!

  2. December 16, 2011 3:53 pm

    You do realize that a conspiracist would argue that is the ultimate point of the current financial system. When you couple the FED’s 6% with the loss of European individual state’s sovereignty, tin foil hats are becoming more en vogue.

  3. debaseface permalink
    December 20, 2011 11:11 pm

    Banks May Flock to ‘Free Money’ as ECB Awards Three-Year Loans

    Dec. 21 (Bloomberg) — The European Central Bank is set to flood euro-area banks with cheap cash as they flock to its offer of three-year loans today.
    Banks will ask the ECB for 293 billion euros ($384 billion) of the 1,134-day funds, according to the median of 14 forecasts in a Bloomberg News survey of economists. Estimates range from 150 billion euros to as much as 600 billion euros.

    Banks May Flock to ‘Free Money’, ECB Offers Three-Year Loans

    “This is basically free money,” said Jens-Oliver Niklasch, a strategist at Landesbank Baden-Wuerttemberg in Stuttgart. “The conditions are unbeatable. Everybody who can will try to get a piece of this cake.”
    Europe’s debt crisis has increased the risk of government and bank defaults, making institutions wary of lending to each other and driving up the cost of credit. The ECB is trying to ensure that banks have access to cheap cash for the medium term so that they can keep lending to companies and households. In addition to the longer-term loans, the ECB has widened the pool of collateral banks can use to secure the funds.
    Italian and Spanish government bond yields have dropped since the ECB announced the loans on Dec. 8 as banks buy the securities to use them for collateral. French President Nicolas Sarkozy has suggested banks could use the loans to buy even more government debt.
    Sarkozy suggested banks could use the loans to buy even more government debt.
    Refinancing Needs

    The ECB’s intention is that banks use the funds to refinance themselves, Vice President Vitor Constancio said in a Dec. 19 interview. He predicted “significant” demand as banks face “very high refinancing needs early next year.”
    Some 230 billion euros of bank bonds mature in the first quarter of 2012 alone, ECB President Mario Draghi told the European Parliament this week.
    “Banks represent about 80 percent of lending to the euro area,” Draghi said. “The banking channel is crucial to the supply of credit.” He predicted banks will experience “very significant funding constraints” for the “whole” of 2012.
    Banks from the euro region need to refinance 35 percent more debt next year than they did this year, according to a Bank of England study. Lenders have more than 600 billion euros of debt maturing next year, around three quarters of which is unsecured, the study says.
    Capital Requirements
    “The good news is that banks won’t have to worry about liquidity for three years,” said Carsten Brzeski, an economist at ING Group in Brussels. “However, it remains to be seen whether the money will filter through to the real economy as the ECB hopes. Many banks still have to increase their capital ratios to meet the Basel III criteria by mid-2012.”
    Regulators are forcing European banks to increase buffers so they can cope with future crises. The European Banking Authority earlier this month ordered the region’s financial firms to raise 114.7 billion euros of additional capital to bolster their core Tier 1 ratios to more than 9 percent of risk- weighted assets by the middle of 2012.
    Faced with a potential credit crunch, the regulator told banks to raise the money from investors, retained earnings and lower bonuses. Failing that, companies may sell assets, provided the disposals don’t limit overall lending to the “real” economy, the EBA said in a Dec. 8 statement.
    ‘Lender of Last Resort’
    The ECB is focusing on greasing the banking system to fight the debt crisis as it resists calls to increase its bond purchases to reduce governments’ borrowing costs. It will also award 98-day loans today and offer a second three-year loan in February. Banks have the option of repaying them after a year.
    With the loans, the ECB is showing it “is the lender of last resort for banks, not for sovereigns,” said Royal Bank of Scotland Group Plc economist Silvio Peruzzo.
    “This will stabilize the banking sector and is another building block in the ECB’s policy to prevent a much dreaded credit squeeze,” said Jan Holthusen, head of fixed-income research at DZ Bank in Frankfurt. “But it’s just one building block and by itself not decisive.”

  4. December 21, 2011 9:58 am

    Ha ha. Batch one was $643.18 billion. How do I declare myself a bank?

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