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Quoting the Crisis
31/01/2012
“ We think Europe’s recession has the potential to be worse than most U.S. strategists expect. As discussed in the November letter, U.S. banks provide 35% of total lending in the U.S. while European banks facilitate 80% of lending to corporations and consumers. This means the European economy is far more dependent on a functional banking system. Despite extraordinary measures by the European Central Bank, Europe’s banking system is on life support. In recent months, European banks faced increasing difficulty in rolling over existing debt, as U.S. money market funds significantly reduced their exposure. As liquidity dried up and the sovereign debt crisis intensified, banks in Europe curtailed lending to each other. In 2012, European banks have $900 billion of their own debt to roll over. Given the unwillingness of market participants to lend to banks, this refunding would be nearly impossible to accomplish, and risk another Lehman Brothers debacle. On December 21, the ECB offered European banks 3 year loans at 1%. A total of 529 jumped at the opportunity and borrowed $640 billion. Of the $640 billion, most of the new loans simply replaced old loans, so only $200 billion actually represented new money. The ECB will repeat this operation on February 28, which should help banks roll most of their coming debt in 2012. „
(
Source:
ritholtz.com
)
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