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Saturday, 14 January 2012

The death of the Banking system

Horsemen of the Apocalypse. An artistic representation.

The debt crisis in Europe is only a prelude. The panic will start when the banking system brake up, say experts. And wait for it to remain for long. And no matter how bad 2011 was for European banks, are now almost 100% chance you can say only one thing: it was better than the current year will be.
A translation from Russian, as seen on:, the diagrams are in Russian, but one do not have to be genius to understand.

The flywheel turns slowly- a doomsday scenario. First, here and there one can hear the criticism of the banking system in Europe. Especially a lot of statements on the subject  by representatives of Great Britain and the United States. Then, in early March, a new financial controller of the Old World, European Central Bank will set stricter conditions for the stress tests. However, all these news and statements are overlooked. The attention is still diverted to Greece. The problems of banks are still in a shade. In essence, under pressure, the banks' problems will come out only in June, shortly before publication of the stress results. At first, the expectations are that one in six banks of the Old World will not to get a "clean bill of health", but the expectations will prove to be too high. Completely failed the tests about 8 banks, 16 more may have passed the tests marginally. Russia is particularly worried about the fate of the Austrian Volksbanken, the acquisition of which was completed shortly before the announcement of the test results, said Sberbank.

Infographics: return on equity of banking sectors.
The European Agency for Banking Supervision ordered the banks that failed the tests to raise 2.5 billion euros of additional capital,however unsuccessfully. The July stress tests are only a prelude to the month of December, when already 31 out of 91 financial institutes will fail the test. It is remarkable that with the tremendous increase in the number of "losers", their geography will be greatly expanded. According to Daiwa Capital Markets economist Tobias Blattner: "Now the main task - to find funds to recapitalize banks in Europe, and the stress tests demonstrate that the banks are far from fulfilling this task." Nevertheless, in 2012 the first and perhaps only the real victim of the debt crisis will be a Franco-Belgian bank Dexia. This European Central Bank is undeterred  by the amount of bad debt and continue to insist that everything is just fine. Dexia has about 21 billion of its assets is a euro debt from the European countries, of which 3.5 billion are originating from Greek government bonds.The European authorities are resolved to save suchlarge financial corporation. By modest estimates, the nationalization of Dexia Belgium will cost 4 billion euros. In addition, France, Belgium and Luxembourg agreed to provide a bank guarantee for the temporary 45 billion euros by 31 May next year. "The bank was badly damaged by the crisis. Every day we monitor the situation. But the main problem the EU - this is Greece. If we solve this problem, there will be no problem, and there will be no problem with the banks," - said Minister of Finance of Belgium Didier Reinders

Infographics: assessment of European banks.
Following the understanding the magnitude of debt crisis will produce panic. Banks will stop lending to each other, investors demand higher risk premiums. The situation was compounded by the fact that in May, the European authorities to unilaterally declare a voluntary adoption by banks of losses on Greek bonds. The rating agency Moody's also states that the losses of European banks in case of default in Greece could be up to 35 billion euros. The new head of the ECB Mario Draghi notes with concern: "European governments must restore confidence in financial markets. We need a new budget regulation" Rating agencies, which attacked the whole year debt to the EU, in the summer added to your piggy bank and European banks. Particularly acute situation at the end of the year. In November and December will become a week for S & P, Fitch or Moody's to announce a reduction of its rating, or possible revisions to the downside. The list includes not only the banks of France, Italy and Spain, but seemingly quite stable Netherlands, Denmark and Sweden. And what previously hit 5, banks maximum of 7, at the end of 2011 the review will threaten 40 out of 90 major financial institutions. rescuing European financial institutions the world. The European banks will be pushed to raise the capital, again and again, but the truth is that they already exhausted their abilities

Infographics: conditions of stress tests for U.S. banks.
Still, the ECB will remain a "magic wand: for the banks of the Old World. Lowering the interest rate, unlimited auctions, a reduction in the reserve ... And finally, the central bank in Europe and does a de facto declared that the money will be as long as necessary. 

December 21 at an auction to provide liquidity to banks for a period of 3 years of the ECB granted the application for 523 banks for a total of nearly half a trillion euros. By the scale of operation can be considered analogous to the absolute second phase of quantitative easing, by the U.S. Federal Reserve, which was completed in the first half of 2011 By the way, 2011 was marked by the ECB itself for yet another very important event. Jean-Claude Trichet has handed over power to the Italian Mario Draghi at the most critical of all the euro's existence now. "The ECB is now under serious pressure, forcing it to buy bonds increasingly troubled eurozone countries. And Mario Draghi in this situation to make a choice between continuity of the old course of the ECB and the need to take unforeseen, urgent decisions," - said the famous economist, Harvard professor Kenneth Rogoff. In 2012, banks worldwide to find almost 355 billion euros to increase the share of equity capital under the new rules, "Basel III". More than any other capital shortage will be felt, of course, European banks. According to estimates Boston Consulting Group, they do not have 221 billion euros. And this despite the fact that the financial crisis, they have increased their capital by up to 75 billion euros.

The End, The Curtains, The Light- burn the theatre.

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