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Nervousness in over-banked Europe slams markets

Posted By Global Macro Monitor On March 26, 2013 @ 1:30 am In Bailouts,Think Tank | Comments Disabled

Those who live in glass houses shouldn’t throw stones. 

Mess with the banks and Europe gets nervous.  After getting all lathered up over the Cyprus deal, markets tanked when the head of the Eurogroup of euro zone [1] finance ministers,  Jeroen Dijsselbloem,  came out with this [2]:

What we’ve done last night is what I call pushing back the risks..If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?  If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.

Only later to be contradicted by this [3]:

25 March 2013
Statement by the Eurogroup President on Cyprus

Cyprus is a specific case with exceptional challenges which required the bail-in measures we have agreed upon yesterday.  Macro-economic adjustment programmes are tailor-made to the situation of the country concerned and no models or templates are used.

Go no further than the following two charts to understand why markets freaked out over Dijsselbloem’s comments.    Europe is way overbanked and vulnerable to financial sector shocks.

Even in the so-called “safe haven” Switzerland [4] the banking system is outsized relative to the country’s GDP.  Compare the relative size of UBS, for example,  to largest bank in the U.S.,  JP Morgan.  Nuff said.

Mar25_Bank Assets [5]

~~~

Mar25_UBS_JPMO [6]

 

(click here [7] if charts are not observable)

 


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/03/nervousness-in-over-banked-europe-slams-markets/

URLs in this post:

[1] euro zone: http://uk.reuters.com/subjects/euro-zone?lc=int_mb_1001

[2] this: http://uk.reuters.com/article/2013/03/25/uk-eurogroup-cyprus-dijsselbloem-idUKBRE92O0IL20130325

[3] this: http://macromon.wordpress.com/2013/03/25/nervousness-in-over-banked-europe-hits-markets/Statement%20by%20the%20Eurogroup%20President%20on%20CyprusCyprus%20is%20a%20specific%20case%20with%20exceptional%20challenges%20which%20required%20the%20bail-in%20measures%20we%20have%20agreed%20upon%20yesterday.%20%20Macro-economic%20adjustment%20programmes%20are%20tailor-made%20to%20the%20situation%20of%20the%20country%20concerned%20and%20no%20models%20or%20templates%20are%20used.

[4] “safe haven” Switzerland: http://macromon.wordpress.com/2011/08/18/seriously-swissie-a-safe-have-during-a-banking-crisis/

[5] Image: http://macromon.wordpress.com/2013/03/25/nervousness-in-over-banked-europe-hits-markets/mar25_bank-assets/

[6] Image: http://macromon.wordpress.com/2013/03/25/nervousness-in-over-banked-europe-hits-markets/mar25_ubs_jpmo/

[7] here: https://macromon.wordpress.com/2013/03/25/nervousness-in-over-banked-europe-hits-markets/

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