Seeking Alpha

At €33T, the eurozone banking system's assets are worth three and a half times the currency...

At €33T, the eurozone banking system's assets are worth three and a half times the currency bloc's GDP, Royal Bank of Scotland notes, adding that the sector needs to shrink its collective balance sheet by €2.7T over the next three years in order for the situation to remain "sustainable." By comparison, the U.S. banking sector is about the same size as the broad economy. "If banks are three times the size of their underlying economy, then governments will not be able to support them all" in a crisis, RBS' Alberto Gallo reasons. (FT)
Comments (6)
  • GDP in some cases is a lousy denominator for comparison purposes...
    21 Jul 2013, 11:45 AM Reply Like
  • ...or they could solve the problem by marking the assets to market......that would solve at least part of the problem pretty quickly.

     

    ( I haven't done the math, but by some press reports, just one hiccup at Deutsche Bank would wipe out their entire equity capital--which was just increased, but by not nearly sufficient to insulate the bank from any single derivative washout).

     

    So we are left with a catch 22. The 'assets' at current marks are outsizeded to the underlying economy and any ability by Governments to (wrongly) support them. But the banks have insufficient capital to start the (painful) process of reducing them to something reflective of their true value.

     

    So, we have QE around the world while we attempt to float sinking balance sheets with artificially high seas of liquidity.

     

    It's all good until someone flinches.
    21 Jul 2013, 12:10 PM Reply Like
  • TB:

     

    Noe that the very same news item, above, states that the U.S., the largest QE advocate by far, is in balance. One would think the "lightbulb" would go on in Europe, and they'd understand that they need to recapitalize the banks equity by greatly expanding the money supply and using it to buy preferred (or other) bank equity.

     

    Instead, the Germans insist on ash-cloth austerity and maintenance of a vastly overvalued euro, even when the continent lives on exports. I suppose they moneyed classes in Germany appreciate the added purchasing power, but everybody else is subsidizing it.
    21 Jul 2013, 01:05 PM Reply Like
  • IMO, that's what makes the Euro/USD short the most compelling medium term trade in the market.

     

    Japan just gave Abe more power to continue devaluing the Yen -

     

    http://bit.ly/13WOI4Z

     

    ----

     

    Germany increasingly needs to export its cars and high-end machinery (same products in which Japan excels) to the rest of the world now that Southern Europe in recession -

     

    http://bit.ly/13WOI50

     

    ---

     

    As you, TB, Kyle Bass...point out, they need to re-capitalize their banks. Think I read DB was stilled levered up 52:1

     

    ------------

     

    And their economy has shrunk 10% relative to the US economy since the intro of the Euro at $1.18 - it is over valued on a PPP basis in the first place.

     

    http://bloom.bg/13WOKtB

     

    ---------

     

    Perhaps one of the best things about the Euro/USD - if we just slowly plod along - the issues above will make it trend down.

     

    If we have a calamity ala 2008/09 - the dollar will rise as most all other assets fall -- so it's a great hedge.
    21 Jul 2013, 01:46 PM Reply Like
  • Isn't this the same metric they used in the Cyprus debacle?
    21 Jul 2013, 01:05 PM Reply Like
  • China can backstop the EU...so long as the EU provides China with a TON of collateral.
    21 Jul 2013, 08:51 PM Reply Like
DJIA (DIA) S&P 500 (SPY)