Vulnerable European banks identified

[webfact]

Twenty-four European banks fail EBA stress test

(BBC) Twenty-four European banks have failed stress tests of their finances, the European Banking Authority (EBA) has announced.

The banks now have nine months to shore up their finances or risk being shut down. No UK banks are included.

The review was based on the banks' financial health at the end of 2013.

Ten of them have taken measures to bolster their balance sheets in the meantime. All the remaining 14 banks are in the eurozone.

The health check was carried out on 123 EU banks by the EBA to determine whether they could withstand another financial crisis.

The list of 14 includes four Italian banks, two Greek banks, two Belgian banks and two Slovenian banks.

The worst affected was Italian bank Monte dei Paschi, which had a capital shortfall of €2.1bn (£1.65bn, $2.6bn).

Full story: http://www.bbc.com/news/business-29777589


-- BBC 2014-10-27

[RustBucket]

The banks now have nine months to shore up their finances or risk being shut down.

Once again the EU running rampant.

[shirtless]

If you or I run a business that losses money we go bankrupt , why should banks be any different, if they cant make money with all the advantages they get they should shut their doors,

[RustBucket]

If you or I run a business that losses money we go bankrupt , why should banks be any different, if they cant make money with all the advantages they get they should shut their doors,

Because it will affect many depositors who have their savings in those banks, or investors who have shares, or pension fund managers who have people's pension investments in such banks. Or the people who the banks employ who will lose their jobs.

It should be up to the sovereign nation's government where the bank is registered and paying taxes to, to have the say in whether the bank is made insolvent or not.

These are clearly small banks who were hit the hardest during the last banking crisis. The small banks were ignored while the big banks were allowed to be bailed out by western tax payers. The small banks were left to struggle through it. So of course they are taking longer to recover.

It is the big banks bailed out so they can continue to pay their executives who made all the mistakes in the first place, six figure bonuses.

I have had a business that struggled through the last crisis. It started losing money but it recovered eventually. It wasn't forced into bankruptcy. That would have only happened if I could no longer manage the company debts.

These banks failed a stress test, they are not struggling to pay creditors, so they should not be forced into bankruptcy. If they get in the crap and struggle to pay their creditors, it is up to their respective governments what should happen.... Not the EU superstate overlords who are made up of pure cronyism unelected stuffed shirts....... And run by Germany.

Edited October 27, 2014 by RustBucket

[NeverSure]

Few will be interested in this rant but I'll write it for them.

A bank never keeps all of your money liquid. It loans it out. At different times in different countries a bank can lend a certain percentage of your money and keep the rest in reserve. So let's take a hypothetical brand new bank on day one.

It opens with $1 million of its own money called capital. If it loses money that capital shrinks and if it makes money it grows.

The first customer is John. He opens an account and deposits $100.

The second customer is Mary and she borrows $80 (John's money) and puts it in another new account.

The bank now has $180 in deposits and $80 in loans.

Joe comes in and opens an account for $500 and Pete comes in and borrows $400 of Pete's money and puts it in a new account.

The bank now has $1,080 in deposits and $480 in loans. The bank is "only" "loaned up" less than 50% and it can go as high as 70 or 80% depending on the country and the fluctuating regulations.

So Roger can come in an make no deposit but borrow $300 because this system is creating money from nowhere.

This system is called "fractional reserve banking."

The bank is safe because it has $1 million of its own capital with which to suffer losses. If someone doesn't repay a loan it will come out of the bank's capital to be sure that all depositors get their money.

If the bank makes a profit its capital grows and if it suffers losses its capital shrinks.

It must have a certain ratio of its own capital to cover deposit accounts against possible loan losses or it is considered belly up.

This is what caused some US banks to need bailouts and others to go broke just a few years ago. When the real estate market bubble burst and speculators didn't repay their loans the banks didn't have enough capital to cover the depositors whose money they had lent.

After the closings and mergers and bailouts all US banks went through a stress test and those that didn't pass were merged into bigger, better capitalized banks, or closed.

This article is telling us that these banks which couldn't pass a stress test don't have the capital to cover contingent loan losses and repay their depositors.

Source - me, former banker and bank auditor.

[Asiantravel]

Few will be interested in this rant but I'll write it for them.

A bank never keeps all of your money liquid. It loans it out. At different times in different countries a bank can lend a certain percentage of your money and keep the rest in reserve. So let's take a hypothetical brand new bank on day one.

It opens with $1 million of its own money called capital. If it loses money that capital shrinks and if it makes money it grows.

The first customer is John. He opens an account and deposits $100.

The second customer is Mary and she borrows $80 (John's money) and puts it in another new account.

The bank now has $180 in deposits and $80 in loans.

Joe comes in and opens an account for $500 and Pete comes in and borrows $400 of Pete's money and puts it in a new account.

The bank now has $1,080 in deposits and $480 in loans. The bank is "only" "loaned up" less than 50% and it can go as high as 70 or 80% depending on the country and the fluctuating regulations.

So Roger can come in an make no deposit but borrow $300 because this system is creating money from nowhere.

This system is called "fractional reserve banking."

The bank is safe because it has $1 million of its own capital with which to suffer losses. If someone doesn't repay a loan it will come out of the bank's capital to be sure that all depositors get their money.

If the bank makes a profit its capital grows and if it suffers losses its capital shrinks.

It must have a certain ratio of its own capital to cover deposit accounts against possible loan losses or it is considered belly up.

This is what caused some US banks to need bailouts and others to go broke just a few years ago. When the real estate market bubble burst and speculators didn't repay their loans the banks didn't have enough capital to cover the depositors whose money they had lent.

After the closings and mergers and bailouts all US banks went through a stress test and those that didn't pass were merged into bigger, better capitalized banks, or closed.

This article is telling us that these banks which couldn't pass a stress test don't have the capital to cover contingent loan losses and repay their depositors.

Source - me, former banker and bank auditor.

" After the closings and mergers and bailouts all US banks went through a stress test and those that didn't pass were merged into bigger, better capitalized banks, or closed."

but at least the European banks dont have this kind of exposure................and how can anyone possibly assess the stress factor of this when derivatives are TOTALLY UNREGULATED ( thanks to Alan Greenspan )

nine banks with the largest exposure to derivatives. Combined, these nine banks are exposed to $228.72 trillion in derivatives, a shockingly high number.

That number is worth approximately three times the entire world economy.

http://www.businessinsider.com/9-banks-combine-for-over-200-trillion-derivatives-exposure-2012-4#ixzz3HJ5LyVLr

Edited October 27, 2014 by Asiantravel

[lee b]

No UK banks? Are you kidding. Mine which i won't name is a joke !!

[whatproblem]

NeverSure ,easily understandable ,well written

[smedly]

The problem is this -

The speculators "couldn't" or "wouldn't" pay back their loans - I suspect most were the latter to the tune of billions and therefore governments (the tax paying public) in effect bailed out the speculators who had already hidden/moved their money/assets somewhere untouchable by the banks or governments, the banks were of course to blame but many so called speculators also made a lot of money - people got rich from this debacle/scam

[NeverSure]

The problem is this -

The speculators "couldn't" or "wouldn't" pay back their loans - I suspect most were the latter to the tune of billions and therefore governments (the tax paying public) in effect bailed out the speculators who had already hidden/moved their money/assets somewhere untouchable by the banks or governments, the banks were of course to blame but many so called speculators also made a lot of money - people got rich from this debacle/scam

Actually, lending policies were way too loose. They've since been tightened up. People who had little liquid assets were able to borrow very large amounts to speculate in real estate. When the prices dropped, they couldn't pay.

Too many were believing that the value of real estate always goes up, and that included lenders.

People who had borrowed this money lost the real estate but still owed the deficiency in value. They went bankrupt. The banks couldn't collect because the collateral had little value.

I suppose there were some who could pay the loans but wouldn't, but they were the minority.

I will tell you that it was a mess and happened so quickly that it caught most people totally by surprise.

[NeverSure]

From the OP.

"The list of 14 includes four Italian banks, two Greek banks, two Belgian banks and two Slovenian banks.

The worst affected was Italian bank Monte dei Paschi, which had a capital shortfall of €2.1bn (£1.65bn, $2.6bn)."

Emphasis mine.

From the rant I wrote above, it's easy to see that what has happened is that these banks have lost so much money that they don't have enough of their own money (capital) to cover the contingency for loan losses and perhaps even operating losses. They are at risk of not being able to pay their depositors because they have loaned the depositors' money and the loans might be bad, and/or they may be losing so much money in normal operations that they are at risk of losing depositor money.

Edited October 27, 2014 by NeverSure

[elgordo38]

Dear Neversure

I am tired of robbing Peter (me the person that saved their money all their life to only receive a pittance of interest in my Golden Years) so that the bank can lend it out to Paul (A person that does not know the meaning of the word saving who does not know how to handle money and will more than likely pee my money away as he did his own during his lifetime) He worships at the Golden Calf of consumerism. Unfortunately this type of person is now in the majority and of course without us savers the banks would have no one to play Monopoly with. This type of predatory lending by banks is what got us in trouble in the first place and its only getting worse yet again. They have learned nothing from the last economic collapse. They have become the carpetbaggers of the 21st century.

[ABCer]

Some very good and clear explanations.

But more pitfalls on the way.

Deposits are usually/often "short".

Loans are usually/often "long".

The spread of deposits is usually/often broad (millions of small customers).

The spread of Loans is usually/often narrow (thousands of customers).

Bad loans happen - the Bank goes belly up affecting millions.

Hence if you go bust - so be it. If Bank goes belly up - the Gov't steps in and gives them your money.

Business ain't business as "oils ain't oils.

There is a booklet called "I want 5% plus the Earth" - it is very true in many points, therefore not very popular.

Do not forget one more small issue. All Gov'ts run at a deficit. Banks subsidy them hence they hold them by the nuts.

But the rule of a thumb is - those who pay the musicians order the tune.

[Baerboxer]

No UK banks? Are you kidding. Mine which i won't name is a joke !!

This has to do with meeting the financial tests. Not about quality of service, that's a different matter.