How worried are you (if at all) by the Italian banking sector?(27 Posts)
Should you be?
Bad loans in Italian banks are currently running at over three times the level they were in US banks just prior to the Global Financial Crisis. A full scale Italian banking crisis might not be the end of the world. But will the Germans come to the rescue yet again? It will cost a bit more than Greece did.
If the other countries using euro don't come to the rescue of Italy then it would be a catastrophe for the euro.
Tbh there were only ever two countries that qualified to enter & it's caused problems forEU since. Much as it falls me to say it thankfully GBrown kept us out
Yes I agree. It does seem strange to me how little we hear on the topic. The two regional banks that were bailed out by the ECB (completely against its post-GFC lessons learned) in June were supposedly small(ish). I suspect that Brussels (Berlin and Frankfurt) are hoping to keep everything below the radar until the German elections are out of the way...this should buy them a few more years of tolerating southern Europe.
I read an article some time ago now about Germany tolerating southern Europe
It was interesting as when Greece was plugged v German all the cracks started to appear and the Greeks actually worked more, longer but having gone into the euro things had become harder - a euro pushed by Germany
There are to many differences between the economy of these different countries to share a currency
The number of Italian banks with a Texas Ratio over 100% (that is all of their bad loans divided by what money they to cover it if the brown stuff hits the fan) is truly shocking. 100% is supposed to set klaxons sounding in any bank. I think Italy has 24 banks at 150%. I can't believe this is not a big deal in the European press... it will only take 3 or 4 of these to go under and there might not be an EU left for us to Brexit from.
I'm not particularly worried (and I'm someone with assets in Italy). The r with Italian banks seem to have been rumbling on since forever, they teeter but never quite fall. Although it would undoubtedly cause enormous difficulties if several did fail, compared to 2008 it would, imo , be pretty contaiinable.
It is reported on with reasonable regularity - I suppose it doesn't get more coverage because, rightly or wrongly, people have got bored by the constant warnings which, so far, have failed to materialise. I expect much of the space on the financial pages is taken up with Brexit which is by far, the more real and present danger and likely to have far more frightening and long-term consequences for this country.
Project Fear does not apply to the banking sectors of Italy, Greece, Spain and Portugal. It's all going so swimmingly well for everyone down there and the German taxpayers will be more than happy to provide endless bailouts.
Yep, let's leave the EU - which will undoubtedly cause this country untold economic pain - because at some point, one of the EU countries may have a banking crisis .
Let's take Brexit out of this and say, if we should be worrying about anything, it is the huge quantity of UK consumer debt which is now higher than it was before the crisis of 2007/8.
The euro will not be allowed to fail.
Germany stands to loose to much if it does
Regardless of Brexit the global banking system is fucked not just the Italians.
None of the British banks are over 100% on their Texas ratio. Btw this measure was first coined in the 1980's and 90's after a spate of bank collapses in there. Turned out that this particular measure is the best predictor of an imminent bank collapse. The key lesson we are supposed to have "learned" from the GFC is that we can no longer have banks which are "too big to fail"..And yet the ECB quietly props up two small regional banks in Italy to the tune of €17Billlion. All tickety-boo then.
I can't comment specifically on the cases you mention. I have lived in Italy though and it staggers me that they manage to be one of the world's richest economies with the rather chaotic management and corruption that seems to go on behind the scenes. But I agree with PP, it was ever thus and things just seem to hang together. Makes you wonder how successful a country it could actually be if they had the organisational skills of the Germans.
I think the whole EU finance is tottering on the brink of collapse. Which is why I voted for Brexit. It's only a matter of time.
There is a Greek bank which is far beyond where RBS or Northern Rock ever were and still "functioning". The southern Europeans were sold a pup with the Euro (at the rates they entered). I do wonder how long / how willing the Germans to prop up the EU edifice, especially since they now have to deal with the second largest net contributor walking away. At some point, the German taxpayers are going to have to say "Genug ist Genug!"
How is Brexit going to help us or the Italian banks? Not sure I see the point?
The Italian banks are screwed. The idea of the Euro demonstrate s that full political and economic union is never going to work.
But we're not in the eurozone, so how is it relevant to Brexit?
The concepts of fractional banking and fiat money are both a big con, at some point the whole pack of cards will come tumbling down, may as well start in Italy as anywhere else.
Yes we certainly dodged a bullet there. It is relevant to Brexit beacuse it shows how contradictory the European banking regulators are. Talk about Moral Hazard, what do you now think will be more likely:
A) The struggling banks of Portugal (of which there are several), Spain and Greece - now suddenly pulling their socks up OR
B) Those same banks thinking (deep down at least), "Ah great. We can continue giving very dodgy loans to friends and "family". The Germans have come to the aid of the Italians. They will have to do the same with us." .
BTW you would be shocked how often these are linked to dodgy land deals and CAP and CFP EU subsidies for growing crops they were subsidised not to grow but grow anyway and then sell on the black market).
I will find link... but a recent bank collapse in Bulgaria resulted in the CEO going "missing" after having lend billions to "connections".
It's just one of many examples of why the EU is flawed by design and failing to hold together cultures of widely divergent views on banking and business ethics.
We can do business without pretending to be one nation with these countries.
If you're interested
This is just one of many such instances
The fact is that the Southern and Eastern members of the EU are extremely relaxed about banking ethics, fraud and corruption. The Northern members are extremely relaxed about the notion of democracy.
I totally agree with you OP. However, the EU have only one option left and thats to demand all EU members join the euro. The QE (to the tune of trillions) whilst boosting lending and currency growth short term, only plugs the hole for so long and eventually becomes counter productive with appalling results, which is where we are now.
Romanias playing politics and allegedly seriously considering joining, and I could see Poland getting a canny deal out of joining too. The EU are desperate. I wont be surprised if we see a 'cash for migrants' deal done in the eastern bloc. (Nothing shocking in that, thats exactly what the EU FOM was)
However, the issues will still remain. No matter how they gild this lily, the economics just dont stand up, and you are absolutely right, that attempting to impose a single monetary policy across 28 nations, is utter utter madness. (Especially when member states then just stick 2 fingers up and default)
Germanys holding the financial reins, but whilst the EU may celebrate expanding the eurozone or some small 'win' by averting further short term crises with tax payers bailouts, the citizens paying those bills know further defaults are just around the corner.
Im a leave voter, but Im not celebrating. Those that created this mammoth pyramid scheme, will have their billions safely snaffled away (theyre certainly not holding their investments in euros!), its the man on the street, the honest tax payer who wont be able to secure a competetive mortgage or lending rates. Who sees his pension shrivel to nothing, and unemployment figures soar making the current youth unemployment figures in the eu appear minor.
Its grim times and the EU arent showing any signs of learning any lessons anytime soon.
Very powerfully put Carolinesbeanies. It is interesting that he peddlars of Project Fear don't ever mention any of this.
Because of this OP.
"The euro will not be allowed to fail." Engtechs post absolutely nails it. The whole pro-eu argument, is based on this belief. It wont be allowed to fail. Its an incomprehensible suggestion.
I think many many remainers do indeed appreciate the precarious situation, but rely on the backstop of 'they wont allow it to fail'.
We saw exactly this in the US in 2007 however, despite ridicule, disbelief, government intervention etc the crash happened anyway.
Yet despite this, the 'too big to fail' policy makers still exist. The IMF warned against it as recently as 2014. The Financial Stability Board, listed 29 world wide banks who fall into this 'too big to fail' category, (that is, the impact of failing would significantly impact world financial stability). 17 of the 29 are in Europe. Just that figure alone, should ring huge alarm bells.
Deutchebank is one such TBTF . Previously on the verge of collapse, theyve sold off a large tranche to the Chinese to pull back from the precipice. Where they go next is anyones guess.
If the UK as a member of the EU can prop up UK banks without a problem, then it needs to be explained why the EU as a whole can't manage to do the same for its banks ?
Apart from not having British politicians in charge .
What does the OP make of the Italian news coverage of the situation ? Or are they relying on Anglophone interpretations of the said coverage ?
Italian linky would be helpful LH.
On your first point, the UK has never been part of the eurozone. We have our own sterling and control our own monetary policy. We do this, to support our own governance and spending. Both are inextricably tied. If we choose to bailout one of our banks, we do so with our own money and accountability to the UK electorate, the UK tax payer, whose money it is. We also have far tighter financial regulation, to protect the UK tax payer.
The EU however, in setting up the euro, treatised a 'no bailout' policy, along with other firm criteria for member states to remain within spending limits and debt accumulation. The reason they did this, is the huge risks that comes with centralising a currency and monetary policy, and the subsequent impact that has on 'local' (individual nation states) governance. In short, if a single member state acts utterly irresponsibly, bankrupts themselves, the other member states must not, and will not, risk further EU tax payers money bailing out the irresponsible member.
What then happened, is that several/many eurozone states, hid their level of spending and their deficits. They had a ball with the new easy flowing euro. They under accounted at a phenomenal level. In 2009, Greece came clean. They were bankrupt and the 'hiding' policy was about to be exposed anyway.
The EU Commision u-turned on the bailout policy.
The current situation in Italy is well explained here.
Whilst the ECB may indeed excuse themselves by stating the Italian failing banks arent themselves a risk to the eurozone, the elephant in the room is that Italy is using ECB loans, piling yet more toxic debt onto an already toxic eurozone to do so.
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