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Europe’s Banking Crisis Hammers All Markets, Even Gold

Written by Gary North on December 13, 2011

The London Telegraph ran a story in the imminent collapse of Europe’s banking system.

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.

The banks are so desperate that they are lending out gold reserves. That’s right: some commercial banks had gold. They are lending it to raise cash.

This means that a run on the banks has begun.

“The system is creaking. There is a large amount of stress,” said Anthony Peters, a strategist at Swissinvest, pointing to soaring interbank lending rates.

The bankers have lost faith in each other’s banks. The system is beginning to freeze up.

Excess reserves at the ECB are climbing rapidly. This indicate a fear of bankruptcies by banks.

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.

The banks cannot fund a recovery in 2012. Europe is already in recession. This indicates a crisis. The crisis is so bad that it has reached German banks.

The results of the fourth round of European Banking Authority (EBA) stress tests conducted in just under 18 months pointed to a €115bn capital shortfall in the eurozone financial system, with German banks showing the most notable deterioration in their core capital ratios.
Moody’s has downgraded the ratings of three major French banks. It is preparing to downgrade the franc.

The fear is the European authorities do not have the financial firepower to deal with the banks’ problems. Analysts at BarCap say that even if the European rescue funds were able to raise €1 trillion of funding this would only meet the needs of the Italian and Spanish government and banks.

The European banking sector’s problems are being exacerbated by a wave of asset sales as lenders look to dramatically shrink their balance sheets. UBS estimates eurozone banks could sell off between €3.7 trillion and €4.5 trillion of assets in the next three years.

The crisis has begun. It will not be contained to Europe. There is no firewall. Banks have lent to each other.

Continue Reading on www.telegraph.co.uk

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