Facts about European banks

by on January 12, 2011 at 12:36 am in Economics | Permalink

“A large part of the Greek debt is hidden on the balance sheets of the Greek banks,” said Theodore Pelagidis, an economist at the University of Piraeus and the co-author of “Understanding the Crisis in Greece,” a scathing account of Greece’s economic implosion. “So you cannot just say ‘Let’s restructure.’ It is not so easy.”

Goldman estimates that requiring a lender to give up 40 percent on holdings of Greek sovereign debt would result in a loss of 5.3 billion euros for the National Bank of Greece, the country’s largest bank. While that bank, which is in the process of raising fresh cash, probably has the capital to survive such a loss, Greece’s other banks may not be so lucky.

As for Portugal, its domestic debt burden is divided more proportionally among foreign and domestic banks, compared with Greece. Still, two out of the three largest holders of its debt are Portuguese, Caixa Geral de DepĆ³sitos and Banco BPI, with 11 billion euros combined.

The No. 2 holder, behind Caixa Geral de DepĆ³sitos, is the Spanish giant, Santander, according to Goldman, with 4.9 billion euros.

The article is here.  The problem, of course, is this: if the government stops payment on some of the debt, they then will have to bail out their domestic banks.

1 Daran January 11, 2011 at 9:23 pm

And under the normal rules of the European market they cannot bail out the local banks without doing the same for foreign banks, or suffer some consequences (although looking at ABN – Dutch bank which which was bailed out earlier – the additional oversight is pretty mild).

2 endorendil January 12, 2011 at 12:45 am

Well, the bailout of banks has to stop at some point. Many of them are – and have been for years – insolvent.

We do have to fix the mess they made by spending public money. But giving the money to the banks is not the best option: it is too expensive, does not offer any guarantees that it will actually help and sends the wrong message to the financial system. In stead of re-capitalising the existing banks, invest the money to create new banks to deal with the assets of the failed ones. The new banks could remain government-owned for several years.

3 dearieme January 12, 2011 at 2:52 am

"they then will have to bail out their domestic banks": no they won't. They could always opt for a restructuring – if needs be, yielding a "good bank" designed to survive and a "bad bank" expected to perish.

4 Debt Problems January 12, 2011 at 1:59 pm

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