Massive European Bank Insolvency

Includes: ERO, EU, EUFN, FXE
by: Avery Goodman

This is a follow up to my article from Thursday morning titled "ECB Lying About European Bank Solvency".

The original article missed a critical 7 day "tender" of ECB funds which took place on Tuesday. The Tuesday grab bag consisted of yet another 160 billion Euros. Like the cash distribution that took place on Thursday morning, Tuesday's giveaway was handled in a stealthy manner designed to trick the public into believing that Europe's banks are solvent. Indeed, the gambit appears to have been a success. A majority of market participants who were focused on the 3 month tender that took place on Wednesday are still blissfully unaware of what really occured this week.

In total, in the last 3 days, the ECB has been forced to give out a total of 403 billion Euros in order to prevent the collapse of some of Europe's largest banking institutions. This is just shy of the original 442 billion Euros that was distributed last June, and far higher than the 250 billion Euros most people expected European banks to need.

The ECB's interest rate on the rollover loans is 1%, and, compared with the comparatively lower rates available to solvent financial institutions able to access loans at the Libor rate, that is very high. No bank would pay so much more if it could pay less. Europe's insolvent bankers, who were forced to take rollover tenders from the ECB (and that is almost all those who took them last year) were obviously shut out of the real market for cash Libor loans.

It is becoming increasingly clear that Europe's banks, at least in the eyes of other bankers, are in much worse shape than expected. The results of three days worth of ECB loan giveaways were not "better than expected", as was alleged, on Wednesday, by those tricked by the ECB's clever tactics. A very large number of European banks are still considered to be uncreditworthy by their peers.

Disclosure: No positions.