“There are so many dangers and disadvantages associated with cash, we have concluded that it should be phased out.” — Trond Bentestuen, executive at DNB, Norway’s largest bank
A bank run and collapse in Europe is getting nearer. Capital control measures, negative interest rates and bail-ins have been instituted and the gates have been closed. Ironic that “money laundering” is one of the excuses for limiting withdrawals given that the big banks are knee deep into laundering.
One of the weak sisters is Monte dei Paschi of Italy, which has been on life support for several years. A third of this zombie bank’s loans are non-performing. The FTSE Italia All-Share Banks Index has plummeted 21% over the first three weeks of this year. This is indicative during a major financial crisis, and that is precisely what is happening.
The analysts estimate the average Texas ratio – a measure of bad loans versus a bank’s capital buffers – of Italian banks stands at around 105%.
This story last week should wake up, even the comatose. The ECB is asking for bad loan data (NPL) from a number of these Italian banks. You mean that they don’t already have this on a constant ongoing basis?
Shortly before the end of the year, Banca Popolare dell’Etruria e del Lazio and three other Italian regional banks collapsed. Shares and debt securities became worthless overnight. Approximately 10,000 retail investors in these securities lost their assets.
These savings are supposed to be legally protected – a maximum of €100,000 per person were to be paid to those affected. But Italy’s deposit guarantee fund lacked the resources to bail out the savers.
Italy is toying with a bad bank concept, which will pile the losses on bank bondholders. Here is what a bail in does in the recent example of Banco Espirito Santo of Portugal. This happened “over a weekend.”
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