I am raising this post from the grave!
"Some in Europe fear ‘zombie banks’" February 13, 2012|By Jack Ewing
FRANKFURT
- Few would begrudge Mario Draghi his boast last week that he and the
European Central Bank had prevented a disastrous credit crisis by
showering banks with cheap loans in December.
But beneath the
gratitude toward Draghi, the central bank president, lurks a fear that
the easy money could simply be creating the conditions for another
banking crisis in several years.
How about months?
Because of the central bank’s
cheap financing, some economists warn, sick banks now face less pressure
to confront their problems - to clean out bad loans and other impaired
assets, or even wind down operations if there is no hope of a
turnaround.
The Fed of Europe printing more money!
The European Central Bank, they say, could inadvertently
spawn a cohort of “zombie banks,’’ burdened by nonperforming loans and
assets on their books, like the ones that helped make the 1990s a lost
decade for Japan.
“It’s
a huge bet,’’ said Charles Wyplosz, a professor of economics at the
Graduate Institute in Geneva. “If the crisis ends up well, the ECB will
have pulled off a miracle. If things go wrong then commercial banks will
be in a much worse situation than they were before.’’
Wyplosz
said the central bank might be making the banking system more fragile by
encouraging institutions to load up on risky assets, especially
government bonds from troubled eurozone countries like Spain and Italy.
Banks can use those assets as collateral for more loans from the central
bank....
So it's the Ponzi scheme that raises 'em from the dead?
The cascade of cash
has lifted sentiment in the eurozone and may help the region avoid a
serious economic downturn.
Wrong again!
But it is not yet clear how banks are using
the money, and whether they will spend it wisely.
Bonuses?
Some banks - no one
knows how many - are bound to use it to cover up past mismanagement and
books full of bad assets.
The central bank intends for banks to
use the money to lend to businesses and support the economy.
Uh-huh.
That is
especially crucial in Europe, where banks, rather than capital markets,
are the main source of credit for corporations.
But analysts
suspect that banks are using much of the cash to buy government bonds.
That would help explain why the interest rates on Spanish and Italian
bonds have plunged in recent weeks.
Related:
"Worried investors again drove
borrowing costs precariously high for far larger Italy and Spain."
Hey, it's been 90 days already!
Some experts say they do not
think zombie banks are a serious problem, in part because regulators are
pushing banks to raise the amount of capital they hold in relation to
the amount of money they borrow. That pressure will eventually expose
the weak banks.
“The banks that should really die postpone their
deaths,’’ said Eduardo Martenez-Abascal, professor of financial
management at IESE Business School in Barcelona. “That would be the main
problem but in my opinion it is not a big one. Compared to the risks it
is rather small.’’
“At the end of the day they will die, or be absorbed by bigger, safer banks,’’ he said.
Consolidation and centralization are really not a good thing no matter what topic or issue you are discussing.
--more--"
Related: Europe's banks grab $712b in cheap loans
Holy crap, 3/4 of a TRILLION dollars in BAILOUT LOOT!!
How do you kill a zombie, anyway?
