Brexit Banking Crisis Unfolding

[cieldumort]

The Bank Index in Europe Just Had it's Largest Daily Drop Ever

"They're going lower ... avoid these ... don't pick bargains.. there's going to be some European bank stocks that lose all their equity value in 2016 ... like Bear Stearns style... it's a very grim picture.. it's a mess..."

Comments

[peristaltor]

Continued reading:

To get an idea of the risks involved in this trade for the sovereign, recall that if you take the combined assets of the top six US banks in the third quarter of 2008 and add them together, it comes to just over 61 percent of US GDP. Any one of these banks, on average, could then claim to impact about 10 percent of US GDP if it failed. Add the risk of contagion discussed earlier, and you have what the US authorities saw as a too big to fail problem. Now, you do the same with European banks in the forth quarter of 2008, which you must do on a national basis (the ratio of bank assets to national GDP) since there is at the time of this writing, no EU-wide deposit guarantee scheme, no EU-wide bailout mechanism for banks: it all falls on the national sovereign-and you get some seriously scary results.

In 2008, the top three French banks had a combined asset footprint of 316 percent of France's GDP. The top two German banks had assets equal to 114 percent of German DGP. In 2011, these figures were 245 percent and 117 percent, respectively. Deutsche Bank alone had an asset footprint of over 80 percent of German GDP and runs an operational leverage of around 40 to 1. This means a mere 3 percent turn against its assets impairs its whole balance sheet and potentially imperils the German sovereign. One bank, ING in Holland, has an asset footprint that is 211 percent off its sovereign's GDP. The top four UK banks have a combined asset footprint of 394 percent of UK GDP. The top three Italian banks constitute a mere 115 percent of GDP, and yet Britain seems to get a free pass by the bond markets in comparison to Italy. The respective sovereign debts of these countries pale into insignificance.

(Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013,pp. 82-83.)