Logo Background RSS

Advertisement

European Bank Capital Shortfalls: France €285B , Germany €199B, Spain €92B

  • Written by Syndicated Publisher No Comments Comments
    January 22, 2014

    At the risk of incurring another nonsensical fine for quoting someone on leverage and capital ratios of French banks, please consider European Banks Face $1 Trillion Gap Before Review.

     European banks have a capital shortfall of as much as 767 billion euros ($1 trillion) before the European Central Bank’s probe into the financial health of the region’s lenders, according to a study.

    French banks show the biggest gap of 285 billion euros, followed by German lenders with as much as 199 billion euros, Sascha Steffen of the European School of Management and Technology in Berlin and Viral Acharya at New York University said in their study dated Jan. 15. The figures assume a benchmark capital ratio for other book measures of leverage of 7 percent, they wrote.

    “A comprehensive and decisive AQR will most likely reveal a substantial lack of capital in many peripheral and core European banks,” the authors wrote, referring to the central bank’s Asset Quality Review stage of the Comprehensive Assessment.

    Spanish banks have a shortfall of 92 billion euros, while Italian banks lack 45 billion euros, the study showed.

    “Our results suggest that with common equity issuance and haircuts on subordinated creditors, it should be possible to deal with many banks’ capital needs,” the authors wrote. “Some will, however, require public backstops, especially if bail-ins are difficult to implement without imposing losses on bondholders, who may themselves be other banks and systemically important financial institutions.”

    Particularly the banking sectors in Belgium, Cyprus and Greece “seem likely to require backstops,” they said.

    Shortfall? What Shortfall?

    To ensure there will not be any major capital shortfalls in the next round of stress-free tests, please note ECB Waters Down 2014 Stress Tests Second Time

    In what translates into yet another sham stress test, the ECB reduced bank capital requirements from 8% to 6% then effectively declared all sovereign bonds held in non-trading portfolios to be risk-free.

    Without a doubt, banks will put all their sovereign bonds in hold-to-maturity buckets (at least for the duration of the stress test).

    Fine Update

    In case you missed it, please note Mish Fined 8,000 Euros for Quoting French Blog.

    Here’s an update:

    A French lawyer volunteered to represent me in an appeal to reduce the fine. His cost was €9,000 (without vat tax at 20%), plus judicial fees of another €1,000.

    I quickly pointed out that legal costs (with uncertain odds of success) exceeded the fine.

    The lawyer then reduced his cost to €4,000 upfront (again without the 20% VAT) plus 50% of any reduction in fine, plus judicial fees of another €1,000.

    I am wondering about the mindset of French lawyers willing to waste their time and mine with such ludicrous proposals.

    My original plan, which I am sticking with because the appeal period is now over, is to not pay the fine and never go to France (and I had no such desire anyway).

    Read more at

    http://globaleconomicanalysis.blogspot.com/2014/01/french-banks-face-285-bn-capital.html#jkfB4L0LPouTvpFu.99

    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.

Advertisement

Closed Comments are currently closed.