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European Bank Capital-Flight Well Underway.

  • Written by Syndicated Publisher 39 Comments39 Comments Comments
    August 29, 2011

    Capital flight from European banks has now reached such a state that for one undisclosed bank needed emergency funding last week for a mere $5 million. Previously, the ECB stepped in to provide $500 million in emergency liquidity measures to non-disclosed banks.

    As money flees Europe, it lands in US banks that do not know what to do with it. Capital flight has led to negative interest rates in the US.

    Duration U.S. Japan Germany UK
    3-Month -.01 0.10 0.97 0.51
    6-Month 0.02 0.11 0.56 0.59
    12-Month 0.08 0.12 0.59 0.53
    2-Year 0.19 0.14 063 0.59
    3-Year 0.32 0.17 0.67 0.75
    5-Year 0.93 0.34 1.20 1.36
    7-Year 1.52 0.59 1.63 1.84
    10-Year 2.18 1.04 2.14 2.49
    30-Year 3.55 2.01 2.98 3.75

    Swelling US Deposits as Money Flees Europe

    For a look at European Bank funding needs please see 8 Trillion Euros in Borrow-Short Lend-Long Madness at European Banks; Circuit-Breaker Silliness; Dash for Cash Sends Short-Term Rates Negative Again

    “Lehman-Like” Credit Crunch Hits EU

    For discussion of the European credit crunch and $500 million in emergency liquidity measures to undisclosed banks, please see“Lehman-Like” Credit Crunch Hits EU; ECB Will Not Disclose Affected Banks; Euro-Style Anxiety Spreads to U.S.

    $5 Million in Emergency Funding

    $5 million is a trivial amount. That a bank would need it is not.

    Jean-Pierre Chevallier writing on Business économiste monétariste behavioriste discusses the stetup in his latest post ECB: no more bets! More…

    The situation is out of control in the euro zone, as I have been writing it for a while…

    The interbank market does not work because euro-zone banks managers have lost confidence in other banks. So they keep their cash in US$ rather than lending it to other banks that need it as they would in normal times: ECB had loaned $5 million to a bank on August, 25.

    ECB had previously loaned $500 million (USD) on August 17. This caused a flash-crash in U.S. markets.

    The problem is serious.

    Chevallier notes that the paltry amount of money involved “shows that the interbank system is completely blocked”.

    Trust in European banks is shot, and by hiding the banks needing emergency liquidity funding, distrust spreads to all banks in the system. Then again, why shouldn’t distrust spread?

    The entire global financial system is bankrupt. Loans have been made that cannot and will not be paid back.

    Mike “Mish” Shedlock

    Images: Flickr (licence attribution)

    About The Author

    Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.  Visit Sitka Pacific’s Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

    You are currently viewing my global economics blog which typically has commentary every day of the week. I am also a contributing “professor” on Minyanville, a community site focused on economic and financial education.  Every Thursday I do a podcast on HoweStreet and on an ad hoc basis contribute to many other sites.

    When not writing about stocks or the economy I spend a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com.