Is the end nigh for the Euro? [vol. 3]
Discussion
EU bank stress test results:
http://www.bloomberg.com/news/2014-10-26/ecb-test-...
The 176-page EU report itself:
https://www.ecb.europa.eu/pub/pdf/other/aggregater...
http://www.bloomberg.com/news/2014-10-26/ecb-test-...
The 176-page EU report itself:
https://www.ecb.europa.eu/pub/pdf/other/aggregater...
Seek said:
EU bank stress test results:
http://www.bloomberg.com/news/2014-10-26/ecb-test-...
The 176-page EU report itself:
https://www.ecb.europa.eu/pub/pdf/other/aggregater...
Interesting to note that 9 of the 25 failures are in Italy. Naturally, the Bank of Italy has been very keen to point out how unfair the stress test criteria are and their statement says;http://www.bloomberg.com/news/2014-10-26/ecb-test-...
The 176-page EU report itself:
https://www.ecb.europa.eu/pub/pdf/other/aggregater...
]the banking and financial systems of various euro-area countries have benefited in recent years from substantial State aid: nearly €250 billion in Germany, almost €60 billion in Spain, around €50 billion in Ireland and the Netherlands, just over €40 billion in Greece, around €19 billion in Belgium and Austria, and nearly €18 billion in Portugal. In Italy State aid amounted to approximately €4 billion."
Clearly, with a debt/GDP ratio of near on 135% there is a huge incentive for Italy to avoid state aid running into tens if not hundreds of billions by simply pretending there's no slovency problems at its banks. Hand in glove with this is a mutually assured destruction, since Italian banks have been massive purchasers of Italian sovereign bonds. What could possibly go wrong with this "pact with the devil"?
The Bank of Italy has sounded like a stuck record of Jo Dolce's "Shaddappa your face"! for the last decade, so keen were they to slap down any implied criticism of Italian banking solvency. So I wonder if it would be helpful to remind ourselves who was Governor of the Bank of Italy from January 2006 to October 2011 and therefore in charge of banking supervision over that period? Ah yes, none other than the current President of the European Central Bank, Mario Draghi!
You couldn't make it up...
Edited by Andy Zarse on Monday 27th October 17:47
rovermorris999 said:
More here on the banks
http://www.capx.co/yet-another-eurozone-bank-white...
To be fair, the ECB had to make a balance between not looking like utter idiots and saying every bank has passed; and on the other hand, not bringing about the collapse of the banking entire system by telling the hideous truth...http://www.capx.co/yet-another-eurozone-bank-white...
Andy Zarse said:
rovermorris999 said:
More here on the banks
http://www.capx.co/yet-another-eurozone-bank-white...
To be fair, the ECB had to make a balance between not looking like utter idiots and saying every bank has passed; and on the other hand, not bringing about the collapse of the banking entire system by telling the hideous truth...http://www.capx.co/yet-another-eurozone-bank-white...
Not widely reported in the press here, but Italy's politicians are giving the EU the sort of hassle more normally associated with UKIP: http://www.economist.com/blogs/charlemagne/2014/10...
The Economist said:
In an act of studied contempt, Mr Renzi’s government published online the Commission’s “strictly confidential” letter demanding an explanation for Italy’s draft 2015 budget...
Mr Renzi said he wanted greater transparency and would, in future, be publishing not just the Commission’s letters, “but all the financial data on how much is spent in these buildings. It’ll be a lot of fun.”...
Mr Renzi said he wanted greater transparency and would, in future, be publishing not just the Commission’s letters, “but all the financial data on how much is spent in these buildings. It’ll be a lot of fun.”...
Well,
to be fair there are some major flaws in the views presented by this stress tests:
- The situation has been assessed taking as a base the capital levels as of end of 2013. Since then, the Italian banks involved repaid the state aid and boosted by 5bn their capital levels. Not yet enough but still an improvement, not captured by the exercise.
- The test excludes savings banks. This means that the "coverage" of the Italian market (where savings banks are a minority) is far higher than the one in the German or Austrian market for example (more than 1.3tn in asset)
- Further to the above, the risk factor weights used are particularly punitive for retail absorptions and quite light for financial investments. That means that MPS for example, which is not a savings bank but has a lot of retail customers, will be comparatively worse off than Commerzbank, which again is not a savings bank but whose portfolio is mainly skewed towards financial investments and not retail clients.
That said, I think that even the Bank of Italy is aware that much work is still to be done.
to be fair there are some major flaws in the views presented by this stress tests:
- The situation has been assessed taking as a base the capital levels as of end of 2013. Since then, the Italian banks involved repaid the state aid and boosted by 5bn their capital levels. Not yet enough but still an improvement, not captured by the exercise.
- The test excludes savings banks. This means that the "coverage" of the Italian market (where savings banks are a minority) is far higher than the one in the German or Austrian market for example (more than 1.3tn in asset)
- Further to the above, the risk factor weights used are particularly punitive for retail absorptions and quite light for financial investments. That means that MPS for example, which is not a savings bank but has a lot of retail customers, will be comparatively worse off than Commerzbank, which again is not a savings bank but whose portfolio is mainly skewed towards financial investments and not retail clients.
That said, I think that even the Bank of Italy is aware that much work is still to be done.
Enricogto said:
Well,
to be fair there are some major flaws in the views presented by this stress tests:
- The situation has been assessed taking as a base the capital levels as of end of 2013. Since then, the Italian banks involved repaid the state aid and boosted by 5bn their capital levels. Not yet enough but still an improvement, not captured by the exercise.
- The test excludes savings banks. This means that the "coverage" of the Italian market (where savings banks are a minority) is far higher than the one in the German or Austrian market for example (more than 1.3tn in asset)
- Further to the above, the risk factor weights used are particularly punitive for retail absorptions and quite light for financial investments. That means that MPS for example, which is not a savings bank but has a lot of retail customers, will be comparatively worse off than Commerzbank, which again is not a savings bank but whose portfolio is mainly skewed towards financial investments and not retail clients.
That said, I think that even the Bank of Italy is aware that much work is still to be done.
Fair points, but what bothers me most about the stress tests is how can all the main Spanish banks have passed when they have almost an entire nation's destroyed housing/mortgage/construction sectors on their books? I realise the Spanish Govt. has gone some way to taking much of the ess-haitch-one-tee off their hands but surely that money didn't come without strings. Or did it? to be fair there are some major flaws in the views presented by this stress tests:
- The situation has been assessed taking as a base the capital levels as of end of 2013. Since then, the Italian banks involved repaid the state aid and boosted by 5bn their capital levels. Not yet enough but still an improvement, not captured by the exercise.
- The test excludes savings banks. This means that the "coverage" of the Italian market (where savings banks are a minority) is far higher than the one in the German or Austrian market for example (more than 1.3tn in asset)
- Further to the above, the risk factor weights used are particularly punitive for retail absorptions and quite light for financial investments. That means that MPS for example, which is not a savings bank but has a lot of retail customers, will be comparatively worse off than Commerzbank, which again is not a savings bank but whose portfolio is mainly skewed towards financial investments and not retail clients.
That said, I think that even the Bank of Italy is aware that much work is still to be done.
Andy,
the fact is that, as you pointed out, Spain has a banking sector skewed to support the (once) only industry of the nation: construction.
Now, the way the stress have been set up is a baseline scenario structured on the EU Commission growth predictions 2013-2016 and an adverse scenario with further 3 years of GDP reduction, very low inflation (!!!!! no mention of deflation!!!) and widening of sovereign spreads.
If you are a Spanish bank with billions of mortgages in your portfolio weighted let's say at 50%, will mean a sizeable impact in terms of capital (halt in the construction industry, noticeable increase in bad quality credit etc....). If instead you are a non-Spanish bank that has yes mortgages, but also loads of credits vs SMEs and manufacturing companies, on the other hand, this scenario is financial Armageddon to you. Couple that with the fact that mortgages are weighted at lower rates than non financial loans, and there you have why Spanish banks got away relatively free.
the fact is that, as you pointed out, Spain has a banking sector skewed to support the (once) only industry of the nation: construction.
Now, the way the stress have been set up is a baseline scenario structured on the EU Commission growth predictions 2013-2016 and an adverse scenario with further 3 years of GDP reduction, very low inflation (!!!!! no mention of deflation!!!) and widening of sovereign spreads.
If you are a Spanish bank with billions of mortgages in your portfolio weighted let's say at 50%, will mean a sizeable impact in terms of capital (halt in the construction industry, noticeable increase in bad quality credit etc....). If instead you are a non-Spanish bank that has yes mortgages, but also loads of credits vs SMEs and manufacturing companies, on the other hand, this scenario is financial Armageddon to you. Couple that with the fact that mortgages are weighted at lower rates than non financial loans, and there you have why Spanish banks got away relatively free.
Huntsman said:
Is it the case that the key measure of trouble in the Euro could be measured by the frequency of posts on this thread?
Almost certainly, There is no credible threat that will see the demise of the Euro in the short term. However the behind the scenes chicanery that is taking place is incredible. Whether this proves to be masterful foresight on the part of our EU overlords or some of the most reckless economic policy ever seen remains to be seen.
Gargamel said:
However the behind the scenes chicanery that is taking place is incredible. Whether this proves to be masterful foresight on the part of our EU overlords or some of the most reckless economic policy ever seen remains to be seen.
Utter desperation and panic seems to be at play.You look at the article I posted the other day about the fight Italy is bringing to the table. They're not daft; they don;t want to be stuck with austerity measures because of debt/deficit levels that are, in fact, lower than Frances are projected to be. The German policy of digging their heels in and resisting QE is what is going to tear the Eurozone apart, not because it is necessarily or technically 'wrong' but because it is divisive int he extreme.
Digga said:
Gargamel said:
However the behind the scenes chicanery that is taking place is incredible. Whether this proves to be masterful foresight on the part of our EU overlords or some of the most reckless economic policy ever seen remains to be seen.
Utter desperation and panic seems to be at play.You look at the article I posted the other day about the fight Italy is bringing to the table. They're not daft; they don;t want to be stuck with austerity measures because of debt/deficit levels that are, in fact, lower than Frances are projected to be. The German policy of digging their heels in and resisting QE is what is going to tear the Eurozone apart, not because it is necessarily or technically 'wrong' but because it is divisive int he extreme.
In my view it won't matter either way. QE is a busted flush, Japan proves it. The world economy has become like an antibiotic-resistant disease. It needs a new treatment. QE is no longer working even if the patients are addicted to the drug.
Enricogto said:
Andy,
the fact is that, as you pointed out, Spain has a banking sector skewed to support the (once) only industry of the nation: construction.
Now, the way the stress have been set up is a baseline scenario structured on the EU Commission growth predictions 2013-2016 and an adverse scenario with further 3 years of GDP reduction, very low inflation (!!!!! no mention of deflation!!!) and widening of sovereign spreads.
If you are a Spanish bank with billions of mortgages in your portfolio weighted let's say at 50%, will mean a sizeable impact in terms of capital (halt in the construction industry, noticeable increase in bad quality credit etc....). If instead you are a non-Spanish bank that has yes mortgages, but also loads of credits vs SMEs and manufacturing companies, on the other hand, this scenario is financial Armageddon to you. Couple that with the fact that mortgages are weighted at lower rates than non financial loans, and there you have why Spanish banks got away relatively free.
Good points the fact is that, as you pointed out, Spain has a banking sector skewed to support the (once) only industry of the nation: construction.
Now, the way the stress have been set up is a baseline scenario structured on the EU Commission growth predictions 2013-2016 and an adverse scenario with further 3 years of GDP reduction, very low inflation (!!!!! no mention of deflation!!!) and widening of sovereign spreads.
If you are a Spanish bank with billions of mortgages in your portfolio weighted let's say at 50%, will mean a sizeable impact in terms of capital (halt in the construction industry, noticeable increase in bad quality credit etc....). If instead you are a non-Spanish bank that has yes mortgages, but also loads of credits vs SMEs and manufacturing companies, on the other hand, this scenario is financial Armageddon to you. Couple that with the fact that mortgages are weighted at lower rates than non financial loans, and there you have why Spanish banks got away relatively free.
I think the fact that the Spanish govt has bunged cash at them hasn't been overlooked either...
It is time for a new front to be opened in the debate and I give you November 9th. Otherwise better known as Independence Day for the Federal Republic of Catalonia!
Same old same old eh? Ah if only you knew what is going down in Spain at the moment! Utterly unreported outside of dago central is the minor matter of the arrest of 50 politicians from around Spain for fraud, embezzlement and general corruption that makes duck houses look like, well , duck houses. Apologies from the Prime Minister, the King and a 10% rise in the numbers of those intending to vote yes in a cpl of weeks from 70% to 80.
So what does this mean for the rest of us? Well basically Espana is f
ked. Right royally, absolutely, utterly fked. There is no debate about this, the Spanish aren't even pretendingn themselves as the hot topic is "WTF do we do after they yes?" Half the worry is if Madrid does something really fking stupid involving a police action because of the "illegal" referendum and the other half is presuming they won't but the impact on the economy , and the debt. Do not doubt this... The Yes vote will trigger a Spanish economic collapse.
Prepare for interesting st to happen.
Same old same old eh? Ah if only you knew what is going down in Spain at the moment! Utterly unreported outside of dago central is the minor matter of the arrest of 50 politicians from around Spain for fraud, embezzlement and general corruption that makes duck houses look like, well , duck houses. Apologies from the Prime Minister, the King and a 10% rise in the numbers of those intending to vote yes in a cpl of weeks from 70% to 80.
So what does this mean for the rest of us? Well basically Espana is f
ked. Right royally, absolutely, utterly fked. There is no debate about this, the Spanish aren't even pretendingn themselves as the hot topic is "WTF do we do after they yes?" Half the worry is if Madrid does something really fking stupid involving a police action because of the "illegal" referendum and the other half is presuming they won't but the impact on the economy , and the debt. Do not doubt this... The Yes vote will trigger a Spanish economic collapse. Prepare for interesting s
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