Are European Banks too Risky?


MARSAL COMMENTS: The European Union (EU) is discussing issuing a law that allows the immediate freezing of depositors’ money in banks that show weakness and sustain a run on them. 

The EU banks have been exhibiting weakness for some years now, and they are estimated to hold over one trillion Euros in non-performing loans, of which approx. 606 Billion euros are from banks in Portugal, Ireland, Italy, Greece and Spain (PIIGS).

If this proposal goes through, the authorities can freeze depositors’ money for 5 working days and thence up to 20 days. Originally, Government Insured deposits (up to Euros 100,00) were exempted, but the new proposal may cancel such insurance.

It seems many EU countries support such measures, including Germany – Even though it would imply a seriously terrifying weakness of European banks and economies.

GENERALLY: Pessimistic
NEGATIVE FOR: European banks and economies, as this could panic the public trigger a run on the banks even before they exhibit any weakness, thus undermining the banking system. This is also, negative for international depositors, who are likely to stay away from European banks and/or withdraw their money.
POSITIVE FOR: Bankers who are thus protected, despite their poor management performance.
TIME SCOPE: Short and Medium Terms



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