The collapse of the Greek economy is almost without precedent. Real household consumption has dropped by 27 per cent since the peak. During the global financial crisis, this figure “only” fell by 6 per cent before rebounding:
Chart du jour from BCA Research:
The public, as well as most of the financial commentariat space, seem mostly to be behind the amended terms and conditions to Cyprus’ Eurogroup bailout, believing them to be fairer for most concerned.
Unlike the original proposal, the new terms do, for example, discriminate between good and bad banks — lessening the burden on those invested in better banks. They spare insured depositors below €100,000. And they require greater participation from other uninsured parties and equity holders in those banks deemed particularly bad. Read more
That’s the result of Cypriot MPs’ vote on the current version of the bank deposit levy, rejecting it as a condition of the island’s bailout. Note that the ruling party abstained. Still, that is the first no, after all these years and the bailouts, to the Troika. Read more
Nicos Anastasiades is between a rock and a hard place.
On one side there’s Cypriot citizens and official creditors — all, it seems, not liking the levy on deposits below €100,000 — and on the other, Russia. Read more
Famous last words and all, but it is hard to see the fear flowing from Cyprus to the average depositor in a Spanish or Italian bank. Not in the short term. As for Lehman II, well, come off it.
After all, that’s probably partly why this inequitable tax on small depositors across Cypriot banks could be put on the Eurogroup negotiating table on Friday. The systemic danger is absent. Read more
A couple of years back, when Carmen Reinhart and Belen Sbrancia updated the concept whereby governments might deal with a problematic mountain of debt by confiscating the savings of their subjects, the discussion was all about the subtle, sleight of hand solutions that might be employed.
Artificially cheap rates of interest might be forced on the embattled sovereign’s debt, local banks might be obliged to buy mis-priced government paper, exchange controls may be erected, and so on. Ordinary people, it seemed, could be financially repressed without realising they were in fact the victims.
There was no discussion back then of outright expropriation or a “tax”, as insured (and uninsured) depositors at Cypriot banks are now being forced to bear. Read more
A “one-off” often isn’t. Calling something after “stability” isn’t very stable. Saying that something is not a precedent usually makes it one.
Presenting the Cyprus bailout’s “upfront one-off stability levy” for depositors in Cypriot banks: Read more
In our last post, we covered up-to-date figures on some of the major components of the headline Spanish deposits number. Here we discuss a new component that will come into play over the next few months. In fact, it might have already been a factor in November’s number.
It’s the €40bn of previously undeclared assets of Spanish residents! The finance minister announced last week that this was simply hiding in a sofa (or possibly multiple sofas), and it wasn’t all that hard to find once they went to the trouble of removing all the cushions. Or, something like that…
OK, actually it’s the amount that came to light through the government’s tax amnesty that closed on November 30th, 2012. But hey, that would have been a hell of a couch, eh? Read more
The measurement of Spanish deposits is whatever you want it to be! Or at least it sometimes seems that people regard it as such.
FT Alphaville has previously discussed how hard it is to meaningfully interpret this number. The last time we went there, to try to explain various underlying components of the figure and which direction they’re travelling, the media was aflutter with tales of deposit flight.
Now, there are stories of deposits and capital returning… and we need to add further driving factors to the headlines. What with the tax amnesty that unearthed some €40bn of previously undeclared assets of Spanish residents, as announced by the finance minister last week, and all. Read more
Whatever it is that Iceland gains from winning this EFTA court case on the Icesave deposits…
Data from the European Central Bank showed that €74bn of deposits left Spain in July. This was a 4.7 per cent drop from June, which seems rather a lot for just one month. The figure for August, released on Thursday morning, revealed that a further €17bn had headed out the door.
While this so-called deposit flight is being reported as putting pressure on the Spanish government, the data behind it isn’t quite as concerning as one would imagine. Read more
BBVA and Santander reported deposit declines of about 1 per cent in the second quarter. While that represents a notable trend, it’s not yet one that should be called alarming.
Unless, points out Citi on Friday, you turn to the corporate and investment banking component in the deposit trend. Read more
Banks deposited a record €821bn over the weekend at the European Central Bank after the bank last week injected a second wave of funds into the eurozone banking system, the FT reports. On Wednesday the ECB announced that 800 banks had borrowed €529.5bn in the second phase of a cheap three-year loan programme being offered by the central bank, a move aimed at easing funding pressures on eurozone lenders. In total lenders have borrowed more than €1tn from the ECB at a rate of 1 per cent under its three-year longer-term refinancing operations (LTRO) in February and December. On Thursday night, ECB overnight deposits rose to €776.9bn, also a record. Following December’s LTRO deposits in the ECB’s overnight facility also jumped, hitting about €450bn at the end of the year. Some suggested that the high level of funds being kept at the ECB is a sign of market tension and an indication that banks are opting for safety, given that the ECB’s overnight deposit facility only earns an interest rate of 0.25 per cent. However, others pointed out that it would be impossible for banks to redeploy that level of capital so quickly.
Yes, the ‘hoarders’ are back. From Dow Jones: Read more
There’s a heated debate going on in the blogosphere between Amar Bhidé, professor at Tufts’s Fletcher School of Law and Diplomacy, and Felix Salmon, Reuters blogger extraordinaire. Reuters’ Peter Thal Larsen has also waded in.
It pertains to Bhidé’s proposal that a 100 per cent state deposit guarantee system might be just what is needed to nip the current crisis in the bud. Read more
Foreign-owned banks operating in the US have suffered their largest six month fall in deposits on record in what some analysts have described as a “flight to safety” from European banks to domestic institutions, reports the FT. Cash on deposit at foreign-owned banks fell $291bn, or 25 per cent, to $879bn from the end of May to the start of December, the first time deposits in the sector have fallen for six consecutive months since 2002, according to Federal Reserve data. While the Federal Reserve only publishes data on foreign-owned banks once a year, in June, quarterly filings by individual subsidiaries of European banks with FDIC show falls in deposits. Deposits at Deutsche Bank’s Americas Trust Company fell by $2.1bn or 6.8 per cent during the third quarter, while deposits at Barclays’ Delaware subsidiary fell by $397m or 5.6 per cent.
Overnight deposits held by eurozone banks at the European Central Bank hit another fresh high for 2011 Monday, reflecting continuing market tension and the end of the central bank’s monthly reserve period, the Wall Street Journal reported. Banks deposited €346.36bn overnight, up from the previous 2011 peak of €334.91bn deposited overnight Friday. According to the paper the high deposit rate reflects the continuing distrust in interbank lending markets, as banks prefer to park cash overnight with the ECB rather than lend it out to other banks. Deposits also tend to rise with the approach of the ECB’s reserve period for commercial banks, says the WSJ. According to the ECB banks borrowed €8.95bn from the ECB’s overnight lending facility — an emergency facility — up from the €7.41bn borrowed on Friday. For more on the ECB’s reserve statistics as related to margin calls, see FT Alphaville.
Bank of America became the latest US bank to scrap plans for a debit card fee, acting after worries that customers of the second-largest US bank by deposits would move their accounts. BofA said its U-turn was a “response to customer feedback and the changing competitive marketplace”, the FT reports. Analysts had worried that BofA could see deposits shift to other banks, denying it a source of liquidity strength. The $5-a-month fee was proposed last month in response to new financial regulations that cap the amount retailers are charged for processing transactions. Banks have said the new rules, part of last year’s Dodd-Frank financial reforms, will cost them hundreds of millions of dollars and will end up benefiting retailers but not consumers. The rule, which was set by the US Federal Reserve and came into force last month, caps the so-called “interchange fee” at about 24 cents for an average debit card transaction, a significant decline from previous charges. According to the Wall Street Journal four other big lenders, led by JP Morgan Chase, dropped their own debit-card fee plans over the past week. Collectively the banks hold more than $3,100bn of deposits, representing almost a third of those handled by US banks.
Overnight deposits at the European Central Bank reached a new high for the year Monday, reflecting new worries about the sovereign crisis and the end of the ECB’s monthly reserve period, the WSJ reports. Bank deposits reached €197.75bn ($270.5bn) Monday, ECB data showed Tuesday, surpassing the prior year high for 2011 of €181.788bn, recorded Friday. Deposit levels of above €100bn are considered to be a sign that banks are turning to the ECB as a safe haven because they are wary of lending to one another. Aside from market tensions, overnight deposits tend to rise toward the end of the ECB’s reserve period, which ends Tuesday, as banks store excess liquidity in the facility after meeting their own reserve requirements for the month, says the Wall Street Journal. The ECB’s all-time overnight deposit high of €384.3bn was reached in June 2010, driven by uncertainty about the then nascent debt crisis and an abundance of liquidity in the market as banks prepared to repay a 12-month ECB refinancing operation. Overnight deposits reached €297.4bn in November 2008, following the collapse of Lehman Brothers.
There’s been a lot of focus on US money market withdrawals from European banks adding to the current market stress in Europe. But could this be a bit of a red herring?
Kash Mansori at the Street Light blog has pulled data from the ECB’s data warehouse, showing a steep decline in deposits held by European monetary financial institutions (MFIs) — that is, banks and money market funds. Read more
Things you might not have noticed in recent Greek bank results:
Eurobank EFG ability to generate recurring profits is reflected in pre provision income, which amounted to €749m in 1H2011 or €324m in 2Q2011, slightly down by 3.5% over 1Q2011, mainly due to lower trading income, higher net interest income and lower costs.
Negative rates have arrived! In Switzerland, anyway.
Which means the risk of the Swiss franc becoming a funding currency for carry trade — à la the Japanese yen — is very real. Read more
This piece of news slipped most of the world by…
A court order has been made to place Southsea Mortgage and Investment Company into the Bank Insolvency Procedure and appoint BDO LLP as the bank liquidator. Find out what this means for Southsea’s customers. Read more
Exactly where you wouldn’t want it, too. Spain.
FT Alphaville readers will remember that a whole bailout-load of eurozone debt worries kicked off once banks started buying up their respective government bonds post-financial crisis. Greek banks bought Greek bonds. Irish banks bought Irish bonds. Spanish banks bought Spanish bonds and so on. Read more
It’s been a day of Argentine parallels to Greece, but this one is especially striking.
Alex Bellefleur of Brockhouse Cooper points out the following charts — one for deposit drains in Argentina back then and Greece now: Read more
Regulatory snafu anyone?
The UK’s Independent Banking Commission (IBC) recommended in April that banks start ‘ring-fencing’ their retail operations so that large banks are able to fail without endangering depositors. That is, so-called ‘universal banks’ that provide both investment banking and retail operations will have to have retail subsidiaries, with separate and sufficient ‘ring-fenced’ capital to cover their own liabilities. Read more
To the sunny climes of Valencia, Spain.
From Bank of Ireland’s just-published annual report for 2010:
The Central Bank requires that banks have sufficient resources (cash inflows and marketable assets) to cover 100% of expected cash outflows in the 0 to 8 day time horizon and 90% of expected cash outflows in the 8 day to 30 day time horizon. The Group notified the Central Bank of a temporary breach of regulatory liquidity requirements in January 2011 (that breach was remediated in January 2011) and a breach in April 2011. The breaches have been associated with the contraction in unsecured wholesale funding, changes in the eligibility criteria of the ECB and increased usage of Monetory Authority funding. The Actions agreed with the Central Bank to de-lever the balance sheet post the PLAR exercise are expected to reduce the Group’s funding and liqudity risk.
Here’s something for anyone who thought last week’s bank lending figures from the People’s Bank of China showed the country was succeeding in its tightening efforts.
It’s a statement from PBoC member Sheng Songcheng. Read more