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In europe, banks borrowing to stay ahead of the tide by wwy yrj
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In europe, banks borrowing to stay ahead of the tide by WWY YRJ
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| Article Posted: 01/03/2013 |
| Article Views: 38 |
| Articles Written: 1412 - MORE ARTICLES FROM THIS AUTHOR |
| Word Count: 539 |
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In europe, banks borrowing to stay ahead of the tide |
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Business,Business News,Business Opportunities
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But as the managing director of the International Monetary Fund,Christine Lagarde, said on Friday in a speech in New York, there islittle time to waste in this regard. European banks are at the epicenter of our current worries andnaturally should be the priority for repair, she said. Ms. Lagarde, who from her earliest days at the fund has focused onbanking problems in Europe, left little doubt how the issue shouldbe addressed.
Let me be clear, she said in her speech. The heart ofEuropean bank repair lies in Europe. That means more Europe, notless. Less Europe will be bad for the Continent and bad for theworld. So, policy makers in Europe need to take further action nowto put the monetary union on a sounder footing.
At the root of the issue is a simple fact: just like the countriesin which they operate, most European banks are highly leveragedentities. They are heavily dependent on borrowed money to operateday to day, whether making loans or paying interest to depositors. For decades, the loans that European banks made to individuals,corporations and their own spendthrift governments far exceeded thedeposits they were able to collect the money that typicallyserves as a bank s main source of ready funds. To plug thisfunding gap, which analysts estimate to be about 1.3 trillioneuros, European banks borrowed heavily from foreign banks and moneymarket funds.
That is why European banks have an averageloan-to-deposit ratio exceeding 110 percent meaning that on anygiven day, they owe more money than they have on hand. In Spain, the problem has been even more acute. Bankia, before itfailed, had a loan-to-deposit ratio of 160 percent, one of thehighest in Europe. Even the strongest banks in the country, likeSantander, the global banking giant, have a fairly risky ratio of115 percent, while big Italian banks like UniCredit rely on bulkborrowing to a similar or higher degree.
In the United States, the comparable figure is about 78 percent,which means the biggest American banks have a surplus of depositsand extra cash that they must put to work. (That can pose its ownperils, as JPMorgan Chase recently demonstrated with its disastroustrading bets built on excess deposits and hedges against losses.) Of late, Europe s bank funding gap has been filled largely by theEuropean Central Bank s temporary program of cheap, three-yearloans to European banks. Italian and Spanish institutions were the most aggressive in liningup at this lending window, and they used much of the cheapfinancing to buy their own government s bonds. In the long run,that particular form of patriotism is likely to hurt those banks finances if the value of the bonds continues to decline. In a recent report on the Italian economy, analysts at Citigroupsaid they did not expect Italian banks to experience a fate similarto that of their Spanish counterparts anytime soon.
But they didhighlight disturbing trends in nonperforming loans in Italy, whichhave doubled since 2008. And they warned that Italian banks buying of government bondsmade them ever more vulnerable to the staggering debt of thegovernment in Rome. I am Bleaching Machinery writer, reports some information about edible cake decorations , commercial popcorn popper.
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