What capital hole? The hole was never there! We do not know this €200bn capital hole of which you speak. This is spillover risk!
Charts via Chapter 1 of the IMF’s latest Global Financial Stability Report, (click to enlarge, red highlights added) which readers will doubtless recall had slight trouble at the drafting stage, with politicians attacking alleged claims in it that European banks face a €200bn capital shortfall amid sovereign stress in the eurozone. (This shortfall came from marking sovereign bonds to market on bank balance sheets. Allegedly. There’s plenty of attention in the GFSR to the issue of banks holding sovereign debt to maturity… Eurozone officials also questioned the Fund’s use of some BIS data on exposures.)
So, as the post-dispute GFSR notes:
However, it is important to note that the exercise is not a calculation of the capital needs of banks (that could be different from the size of spillovers in this report). Determining capital needs would call for a fully fledged stress test that seeks to identify the full range of stresses [etc]…
Very true. But the IMF cannot have failed to note in writing this that Europe has conducted two high-profile bank stress tests already, which no one believed. Hard not to see that as a warning to the Europeans.
Oh, and what is “spillover risk”? There’s a whole box on that starting on page 18 of the report, but basically it’s the impact of losses from exposures to “high-spread sovereigns” and also their banks. Comments on the methodology described therein most welcome below..
Related link:
IMF warns on global financial system – FT