« Too few european banks have been dismantled and left the market. » These words weren’t uttered by some anarchist wanting to bring down capitalism, but rather by Andrea Enria, president of the European Banking Authority, in an interview with the Frankfurter Allgemeine Zeitung. He goes on : « Only 40 european banks have disappeared since the 2008 financial crisis, compared to almost 500 in the United States. The governments have decided to keep their banks alive, and this has caused the healing process to slow down. »
The European Banking Authority is not particularly known for its clairvoyance. It’s even been accused, and rightly so, of negligence and denying reality when it realised some stress tests in 2011, coming to the conclusion that only nine european banks were in need of reinforcing their own funds, for a total amount of 2,5 Trillion euros. A ludicrous number, that the EBA is denying today, without recognising its mistake. Better late than never...
This declaration means that too many zombie banks are still operating in Europe, that too many bad loans haven’t been purged, and that the crisis is still looming in the banks’ balance sheets. It also means that the States are propping up banks, not for any economic reasons, but solely for political reasons. And EBA’s president wants to end this guilty complacency by explaining that Europe, within its banking union, must put in place re-structuration and dismantling mechanisms for the banks, but that, as of now, European leaders haven’t succeeded in deciding what shape this « resolution » will take, who will have decision powers, and who will finance it. One can thus expect quite a few battles in the coming months.
So we should expect some banks to fail or, more exactly, to be « re-structured »... and we know what that means, now : by looting depositors’ accounts, as it’s been done in Cyprus first, and as it’s being formalised by a european directive. The States and the banks will agree to have the savers pay, and too bad for them. The countries are all too indebted, the banks have taken too much risk, but they’re still in charge and no one should expect they would pay for their own mistakes.
At least, we’re being forewarned. This declaration is also a warning. After Cyprus, after the IMF « suggestion » of looting 10% of bank accounts to reduce sovereign debt, we now have the European Banking Authority telling us that many banks are in a situation of virtual bankruptcy. As I said, we have been warned...
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Philippe Herlin Finance Researcher / Member of the Goldbroker.com Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.