An Underground Earthquake??
Back-Door Bank Runs in Europe Have Started
In his interview at King World News, James Turk, founder of GoldMoney and author of The Coming Collapse of the Dollar, noted in his travels around Europe that “there is one common trait, regardless of which country I am in: people are really frightened about the possibility of the collapse of the euro. Money continues to move out of the European banking system, which explains why central banks stepped in with some money printing last week.”
He then went on to explain that there are only three sources of funding available to a bank: its customers lending it capital through checking and savings accounts, the issuing of long-term bonds which it sells to bond investors, and short-term financing provided mostly through money market funds. If any of these sources dries up, it puts the bank almost immediately into a precarious financial position. He said that the day before the world’s central banks stepped in to make short-term money more available was “frightening:”
Even though I’ve been saying this has been coming, last week was truly frightening with the banking system about to fall into the abyss. Had the central banks not stepped in it would have been a Lehman moment.
Sadly, they haven’t solved the problem. They have bought time and whether that time is one or two weeks or maybe a month, we will soon find out.
Two days later, The Economist wrote that a back-door run on European banks had begun in earnest. This is not the typical visible bank run with depositors lined up at the front doors waiting to withdraw their funds. Instead, as The Economist noted, “billions of euros are flooding out of Europe’s banking system through [the back door of] bond and money markets.” It started just after Dexia failed. In the third quarter bonds issued by European banks were just 15 percent of the amount they sold over the same period in the last two years.
An analyst for Citi Group wrote that corporations also have started withdrawing excess balances from banks in Spain, Italy, France, and Belgium. This is forcing banks to begin to act like pawn brokers, putting up real assets as collateral for loans. The president of UniCredit, an Italian bank, for instance, has asked the European Central Bank to broaden its range of “acceptable assets” against which it will lend. And an increasing number of banks are now engaging in “liquidity swaps” where banks borrow an asset that the ECB will accept as collateral in exchange for one that it won’t accept, and paying a hefty premium for the privilege.
Banks are reducing their lending to finance trade and fund aircraft leases as well in order to preserve cash. But that only slows down the bleeding and buys the banks precious little time.
And also this from Sunday, December 11th:
Is The Eurozone Banking System About To Collapse?
December 11, 2011
The Telegraph sounded alarm bells late Friday that the Eurozone banking system [is] on the edge of collapse. Specifically, the problem is related to a lack of acceptable collateral, or "collateral crunch", for overnight and other short-term bank funding [emphasis added]:
Senior analysts and traders warned of impending bank failures as a summit intended to solve the European crisis failed to deliver a solution that eased concerns over bank funding.
The European Central Bank admitted it had held meetings about providing emergency funding to the region's struggling banks, however City figures said a "collateral crunch" was looming.
"If anyone thinks things are getting better then they simply don't understand how severe the problems are. I think a major bank could fail within weeks," said one London-based executive at a major global bank.
Many banks, including some French, Italian and Spanish lenders, have already run out of many of the acceptable forms of collateral such as US Treasuries and other liquid securities used to finance short-term loans and have been forced to resort to lending out their gold reserves to maintain access to dollar funding.
The eurozone banking system is paralyzed by counterparty
fears risk, where banks would rather park their excess funds with the ECB instead of lending to each other:
Bank deposits with the ECB now stand at their highest level since June 2010 at €905bn (£772bn) as lenders withdraw deposits held with their peers and put them into the central bank. At the same time, banks in major eurozone countries such as France and Italy have become increasingly reliant on central bank funding. This follows the trend seen in smaller countries like Ireland where lenders have effectively becomes taxpayer-funded "zombie" banks.
I will let you decide if the crisis of the VaYishlach effect is over. In my humble opinion it has just begun. Something happened on Tuesday, December 13th at about 4pm. It seems like a floodgate opened up and money poured out of Europe into the United States to buy US Savings bonds at a piddly 2% interest rate. Europeans are now jumping in massive numbers from the Lusitania to the Titanic, figuring that the Titaninc (the USA) may yet sink, but the Lusitania (The Eurozone) is in the last stages of sinking. It is your money. I leave it up to you to decide. Then someone can tell me. Who was at that Spanish auction today for short term Spanish treasuries? With a near panic of Europeans leaving the Euro for a safer haven, someone else was in Spain buying up all that Spanish debt for the sole purpose of calming the markets. Was in Ben Oni Bernanke, the ECB, the Chinese, or someone else??? Do not take me for a fool and tell me that it was a bunch of hopium inspired Europeans with infinite faith that the Spanish will pay back their debts, just like the Greeks, the Irish, and the Portuguese paid back their debts too.