Many EU Banks Would Collapse Without Regulators’ Help: Fitch

Only two things keep these banks alive: “a State willing to support them and a regulator that does not declare them insolvent.”

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Dozens of Greek, Italian, Spanish and even German lenders have volumes of troubled assets higher or similar to that of Spain’s fallen lender Banco Popular. They, too, are at risk of insolvency. This stark observation came from Bridget Gandy, director of financial institutions for Fitch Ratings, who spoke at a conference in London on Thursday.

The troubled banks include:

  • Greece’s HB, Piraeus, NBG, Eurobank and Alpha;
  • Italy’s Monte dei Pachi di Siena (which is in the process of being rescued with state funds), Carige (9th largest bank, now under ECB orders to raise capital or else), CreVal, and the two collapsed banks, Veneto and Vicenza (whose senior bondholders were bailed out last weekend);
  • Germany’s Bremer Landesbank (which just cancel interest payments on its CoCo bonds) and shipping lender HSH Nordbank.
  • Spain’s Liberbank and majority state-owned BMN and Bankia, which are completing a merger after private-sector institutions refused to buy BMN. Now, the problems on BMN’s balance sheet belong to Bankia, which already has its own set of issues, Gandy said.

That many of Europe’s banks are teetering on the brink of insolvency is not exactly new news. Most of the problems that caused the financial crisis have not been resolved. As the financial journalist and former investment banker Nomi Prins said in a 2015 interview with Dutch media group VPRO, “in Europe there still exist massive amounts of trades (on banks’ balance sheets) that are underwater and going wrong every day.”

According to a chart presented by Gandy, most of the banks she cited (in particular the Greek and Italian ones) have total unprovisioned non-performing assets that clearly exceed their total level of capital. In other words, if the losses on those assets crystallized, the banks would run out of funds.

Banks tend to fail when the Texas ratio, a measure of bad loans as a proportion of capital reserves, surpasses 100%, meaning that they don’t have enough capital to cover all the bad stuff on their books. As we reported a few months ago, 114 out of the approximately 500 banks in Italy have Texas ratios of over 100%. Of those, 24 have ratios of over 200%. Since then, one of them (Monte dei Pacshi) has been rescued with public funds while another two (Veneto Banca and Banca Popolare di Vicenza) have been liquidated, also with public funds. Three down, 111 (or 21) to go.

The remaining banks remain walking zombies. According to Gandy, there are only two things keeping banks like them walking: “a State willing to support them and a regulator that does not declare them insolvent.”

In her talk Gandy compared the situation of Popular prior to its resolution with that of Italy’s Monte dei Paschi (MPS), which is still standing thanks to the explicit support of the Italian government. Both entities had a similar volume of total assets, she said. In fact, if anything, Popular had a better problem loan ratio on its balance sheet than MPS. While the Spanish entity was “resolved” through the cancellation and redemption of its convertible and subordinated shares and bonds, MPS was recapitalized with government money.

In the case of Veneto Banca and Banca Popolare di Vicenza, vast sums of scarce public funds were mobilized to make senior bondholders whole though other investors were not so lucky. To make this deal more palatable to the taxpayer, the Italian government now says that it could actually recuperate all of the money with which it bailed out the bondholders once the toxic assets are sold and all the dust settles, and that in fact, the public coffers could end up gaining €700 million in the end.

Of course, similar rosy predictions were made by the Spanish government when it bailed out Spain’s banking system in 2011-12. Last week Spain’s Bank of Spain finally admitted that €60 billion of the funds would never be seen again. Meanwhile, Spain’s bad bank, Sareb, continues to register losses despite the fact it is able to readjust the accounting models its uses pretty much at whim.

As for investors, the message is surprisingly clear in the face of such legal ambiguity: If you hold shares or subordinated bonds in a struggling European bank, of which there are plenty to choose from, there’s absolutely no telling what could happen to them. The value of your holdings depends entirely on the whim of the ECB’s Single Resolution Board, whose decision making appears to be heavily influenced by a whole host of considerations, including potential political ramifications as well as the fear that making investors take big losses in one insolvent bank could end up toppling the entire rickety edifice. But for now, investors in senior debt of banks can sleep well, knowing that next time, taxpayers will be once again shanghaied into bailing them out. By Don Quijones.

What would a disorderly bank collapse in Spain and Italy have done? Read…  Autopsy of Banco Popular Shows Fragility of EU Banking System

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  64 comments for “Many EU Banks Would Collapse Without Regulators’ Help: Fitch

  1. Steve Peter finney says:

    Please pardon my ignorance, but will tightening reduce the ECB’s ability to keep propping these rotten piles up ?

    • cdr says:

      Yes, hence the ridiculous excuses by the ECB and their supporters to keep QE and rate management on 11 going to 12 and beyond before they decide 15 to 20 is about right. Looking forward to the next rationalization and sales pitch for even more QE. They’re going to be legend someday. Then, once these banks fail, the Eurozone fails. Hopefully the Fed has a study group figuring out how to keep problems from over there … over there. Doubtful.

      How does a continent declare bankruptcy? Actually, they will change the laws and print their way out of trouble. Still, it will be fun to watch as there will be no way to talk their way out of what is happening .. at least credibly.

      To the good, the Euro might survive if rates are allowed to rise and fall per country as needed to control capital flows and demand for borrowed money. (I know, this sound too preposterous to contemplate – Euro-rates being allowed to market levels.)

      • Frederick says:

        CD-R you’re kidding right Look at the state of Illinois before you point fingers at the EU We have plenty of our own home grown disfunction right here in America

      • Chris Wagner says:

        Good questions. If you can, read Bernard Connolly’s excellent book “The Rotten Heart of Europe”. A good read, witty, abrasive and well corroborated. Wish he would write a sequel now.

        They will 1. ban cash. No more bank runs :—) France wants “a European finance minister” and Murksel (Merkel) has agreed. No surprise as she used to be in the Socialist party and total equality is their thing. One day, they will succeed taxing the Germans to a level below that of Greece. (There are millions on shockingly low pensions. We are talking like 200 € after the rents gets paid. And about 38% are homeowners vs >80 in the UK).

        Read up on TARGET 2. Youtube. Google it. Professor Sinn discovered the number buried deep in the ECB’s accounts. Basically, the Club Med countries owe a few Northern central banks hundreds of billions. With no chance of ever getting made whole. Southern CB’s can leave an I.O.U. behind at 0.75%. No application needed, it’s like having a partner credit card linked to Bill Gate’s main account. Engjoy!

        What that means: different levels of salaries & productivity require balancing debt help. Look at the dishonesty in Greece. Some give money, allowing to extend and pretend (kicking the can down the road). No solution. Think of an infected tooth being treated with painkillers, instead of getting pulled out or getting root canal treatment.

        Germany has attracted people by showing that all can enter their welfare system. Fast forward a decade and you will realize that something will have to give.

        Hopefully, Italy will exit the EU. And it will end before a guarantee for anyone and everyone, bankrupting Germany without fail.

        It’s the intentional dishonesty which makes it worse. Murksel should come clean about little things like Greece owing 1xx bn m o r e than she and “Gollum” talks about.

        • Stevedcfc72 says:

          Italy needs to exit the Euro but won’t as it owes so much money.

          I was listening to Monte Dei Paschi CEO this morning about 2017-21 turnaround plan. I couldn’t do his job what a mess.

          In summary:

          They’re booking another 3.9 billion euros loss in 2017 accounts with relation to the 28 billion euro NPL sale.

          5,500 employees to lose their jobs. 600 branches to close.

          Interesting one was for year end 2016 593million euros interest income had been booked on the profit and loss for 2016 with reference to Unlikely to pay debt.

  2. Stevedcfc72 says:

    In Italy Carige on the last set of accounts 31st March 2017 their bad loans were as follows:

    Gross NPL’S – 7.3billion euro’s
    Provision coverage for NPL’S 3.4 billion euro’s
    Nett not provided for NPL’s 3.9 billion euro’s

    Out of a total loan book of 21.5 billion.

    34% of their loan book is non-performing, one in three lol.

    • walter map says:

      How many of those billions were loaned to shell companies controlled by wealthy friends of Carige who simply made the money disappear – losses that Carige would then require the government to make good on with public funds?

      Not every bankster can pull off this kind of extortion. They have to be big enough to coerce the government if they don’t pay up. Hence the goal of becoming TBTF.

      • MC says:

        64% of NPL’s held by Italian banks are in the “real estate and construction” sector.

        Italy has a very messed up real estate sector: a high and in some areas very high unsold stock but a growing supply of both housing and commercial real estate. These endeavors are exclusively speculative in nature and are fully approved by both top level economists (that chimaeric GDP growth that trumps everything) and especially politicians.

        People have no idea how deeply in debt local governments in Italy, especially in the North, are. I’ve recently learned a town of just 5000 in Lombardy has an outstanding debt of €6 million… how is that possible when welfare and healthcare are not their responsibility and they have infrastructures that look straight out of some post-apocalyptic future? Having been born and grown up in the Italian Alps I have my ideas but I keep them to myself.

        To fund this spending binge, not to mention service debt, land sales, impact fees, stamp duties and everything real estate related are the only solution. But remember: the market is oversupplied. There are hundreds of abandoned sites that could be repurposed.
        That’s where banks come in, generously financing every ill-concocted scheme that can help goose up present GDP a tiny bit and allow a bankrupt muni to kick the can one extra year. Is this politically motivated? Yes, absolutely. And the Gang of Four in Frankfurt and Brussels knows it perfectly well, like they knew perfectly well Greece was a ticking time bomb the second she was allowed into the EMU.

        • Stevedcfc72 says:

          Hi MC,

          Surely the Italian Banks aren’t still financing ill-concocted schemes with the amount of sofferenze already on their books?


        • MC says:

          That’s the proverbial million dollar question.

          Judging by the reports I get from my relatives it seems in the construction/real estate sector things are heating up again thanks to middle and small sized banks (mostly with Texas Ratios north of the 100% mark) opening up the spigots again after several years of forced caution.
          Perhaps these schemes will turn out to be highly successful but it’s difficult to say, as an aging population has less need for houses and less time to pay off loans and mortgages.
          Even more critically it remains to be seen just how long the charade of “high prices, always” will be maintained. Like high trade-in values in the car market, they are vital to keep the machine going without a major adjustment.
          During my last visit to Italy I saw small houses being built at the side of a very congested road. Thinking them to be some sort of cheap or even subsidized housing I made the mistake of checking the price out of curiosity: they were priced €385.000/440.000!!! Who can look at such houses, at the abandoned factory half a mile away, at the traffic and say “This is an investment worthy a 20+ years mortgage”?
          Only people brought up with the mantra that “a house is a blank cheque”. Who, incidentally, are starting to deal with the Grim Reaper due to age limits.

        • Stevedcfc72 says:

          Thanks MC for the reply. What a crazy situation in Italy.

          What makes me laugh is that banks are allowed to drip feed the bad news within their financial statements to make it look like they’re almost solvent.

          With the sofferenze-bad debt you just know the banks are going to get hardly any of their money back so why they only have coverage of the bad debts-sofferenze roughly averaging about 60% of gross value.

          Quarter 1 – Nice steady number to start the year off.
          Quarter 2 – Make sure the Half year number looks similar to last year.
          Quarter 3 – Holding up to last year about 5% down.
          Quarter 4 – Big Write off of non-performing loans, losses again for the financial year.

          That’s not just Italian banks. I’m not sure what accounting standards they follow but they’re not the one’s which should be showing true and fair.

  3. walter map says:

    A government that robs Peter to pay Paul can always depend on the support of Paul.

    But the government need not have Paul’s suppor. Paul can simply hold Peter hostage: “Pay up or we crash the economy.”

    Paul can also simply stack the government with his own employees who are also pirates: “Get in there and do your job. Heh heh heh.”

    With so many opportunities available to Paul, it’s no wonder Peter always ends up getting screwed.

    • Wilbur58 says:

      Hi Walter,

      And my favorite part about the blackmail, “Pay up or we crash the economy”, is that it isn’t true.

      I’ve believed from 2007 through today… that you kills these insolvent banks while keeping depositors whole. F the equity holders and bond holders.

      The economy would not only survive, it would thrive. I’m still amazed at how many otherwise educated people said of the crash, “Well, the banks were bad, but we just had to bail it out or things would have gotten REALLY bad.” Uh, why?

      I would always response with things like… so uh, without Chase or BofA, water and the sun don’t help fruits and vegetables grow? A clothier can’t sell t-shirts? A plumber can’t fix a pipe?

      It’s so ridiculous, the propaganda.

      • cdr says:

        Agree. A smoothly running economy is a function of liquidity. Remove liquidity and you create a crisis. Add liquidity, force feed it if necessary to the ones who need it, and see the economy prosper. QE going to bank reserves that pay interest creates stagnation, as opposed to banks that must lend it under pain of punishment. Normalized interest rates are absolutely needed for an economy that functions well, as opposed low rate as a gift to the upper 1%.

      • chip javert says:

        Wilbur 58

        …and exactly where have you seen this done so that you know it works?

        Russia after 1987? Greece in 2009?

        Do you consider both of those countries to have returned to “financial health” as a result of your naive “solution”?

      • Chris Wagner says:

        Yeah, look at both Russia and South Korea. Letting sick banks DIE is the way to go. Think of a buffalo heard staying put because of some sick old and doomed animals. Soon, they all might die if the herd fails to reach the water hundreds of miles away…

        Both countries prospered like crazy following drastic events.

        Extractions of rotting & infected teeth works despite all the tricks and remedies at dentists’ disposal. (I had a badd tooth trigger an infection which spread to my neck, then the cheast. About 10 days in hospital and 30 IVs later, the blasted tooth was pulled and it was o v e r.

        The EU’s banking crisis will never end unless some bad teeth get pulled, figuratively speaking.

  4. David Calder says:

    The ability of US banks to withstand a shock was reported to be OK but did the scenario include the collapse of a number of European banks?

    • IdahoPotato says:

      If Deutsche Bank collapses, it would seriously jeopardise the entire system worldwide.

      “The bank’s CET1 leverage ratio came in at just 3.2% as at YE16. This is a major read flag. For comparison, its smaller German rival, Commerzbank has improved its CET1 leverage ratio to 4.8%. As a reminder, there are no formal minimum regulatory requirements set as yet. However, according to research from the Bank for International Settlements, global regulators have “considerable room” to raise the Basel III leverage ratio for banks as high as 5%. It is also well worth mentioning that US regulators and Swiss regulators have already increased their Basel III leverage ratio requirements to 5%.”

      Meanwhile, these guys who are up to their eyeballs in Russian money laundering and fraud allegations are stomping their feet, ‘cos they didn’t get their bonuses.

      Too big to fail, not big enough to engage in criminal activity.

    • Frederick says:

      And you believe that assessment do you? Just like the unemployment rate is 4.2 percent Not when you include people like my wife and I who gave up and expatriated The numbers are not reliable in my opinion

      • chip javert says:


        Why would we include you & your wife in our unemployment rate if you’ve both expatriated? Should we also include your possible future children?

        • Chris Wagner says:

          What Frederick was meaning is that he experienced difficulties getting jobs. Like many (like that engineer who has been programming satellites but at near 60, cannot find a new job).

          Healthy job markets in the 50s, 60s and 70s were for FULL TIME jobs! Not “limitied contracts” which will end in a few months or “Gig economy” jobs for waiters.

          Tax collections speak the truth. Hours worked, not bloody “statistics” Many stopped trying. You’ll should look at total hours worked & the level of salaries. “Fly over America” has been hurting big time. While the bi-coastal elites keep up appearances (and still, there is rot everywhere and even those big shots with 7-figure homes – with 10% equity – and leased foreign cars are just a few pay checks away from financial meltdown).

    • walter map says:

      Do you believe the reports? And if so, how much?

      They wouldn’t lie to you, would they? Why, that would be wrong.

      It may be helpful to perceive that the FIC has declared war on the world and that they will be careful to misinform and disinform you as to the nature of their tactics and strategy.

      And yet, that there is such a war is increasingly palpable: at the behest of Wall St., firms are resorting to relationships with their workers that are antagonistic and adversarial. Firms are squeezing their vendors harder. High-level fraud and deception become routine and go uninvestigated. Privatization drives are everywhere: public education is becoming results-driven, cost-driven, unaffordable, and profitable. Customers are constant victims of shell games. Consumer rights, labor rights, citizen rights, investor rights are dismissed, ignored, and unenforceable. Regulations intended to contain corporate piracy are attacked as “costing jobs”, and governments administering them are starved, threatened with shutdowns, and corrupted from the inside. And nobody knows where all the money went, but it certainly did disappear.

      Yes, there’s a war on. Guess who’s the enemy.

      • Randolf says:

        You can’t expect a different result when business and government are bereft of ethics and morals. The theme:. Get as much money as possible before the other guy gets it. And, if it’s all gone, have the government borrow more and lend it out at negative interest rates to . . .

      • cdr says:

        “Yes, there’s a war on. Guess who’s the enemy.”

        The war is government as the free ride vs everyone else. Creeping socialism is the problem. Some see it as a gullible government who has all the money and all the control … and they want to be put in charge. Others see it as some sort of fictional Utopia. The former uses the latter as fodder and noise. Hollywood liberals and the mainstream media, for example, are useful idiots.

        Shine a bright light on those in the background and hear their minions scream bloody murder for them. And they almost had it. The prize was almost in their grasp. Then Trump won.

        • Hiho says:

          It is amazing to see how decades of antigov propaganda have brainwashed you. Socialism in the us? Yeah, sure. Keep telling yourself that.

          And the most hilarious thing is that he reallt belives it. It is not that he is trying to lie, but he honestly believes that. With banksters stealing his money, privatized roads, for profit education, big pharma, healthcare…

          But yes your problem is thst socialism is creeping your country.

          Keep telling your self that and sinking deeper and deeper. Once your country collapses under its own weight you will be left in the dirt asking your self: but, but.. free markets? Weren’t we unregulating enough? Cutting enough?

        • Kaz Augustin says:

          +1 Hiho

          I like both the articles and the comments here, which is why I always visit :) but one thing that always makes me shake my head across all “social media communities” is the fact that USians just plain don’t know what “socialism” means and tag everything bad with it. You use the term a lot but you guys wouldn’t know what socialism is if it fell on your face and started to wiggle.

          For the record, too, it *isn’t* “socialism for the rich”, another term I’m getting heartily sick of. That’s just another way to demonise socialism in the mainstream press. The correct word is PLUTOCRACY. The dictionary (and a willingness to be spherically sceptical) is your friend.

          Pinko commie scum (as I was called in Silicon Valley) Kaz

        • Chris Wagner says:

          You are on to something here. For Germany, free healthcare to all who break the law, entering the country illegally. From day 1. While strugglign self-employed folks would kill to get a free root canal treatment.

          In the past, section 8 paid > $ 600 rent and the tenants just $ 300. That was in Jackson MS and the FMR would have been way less. S8 is a terrible program. In 29 Palms, LLs make out like bandits as the bureaucRATS base the rent on “San Bernardino” where it’s hundreds of Dollars higher. – I could rant on regarding governments’ shortcomings. (Like that high school in Thailand where they paid 6 full-time technicians and the internet was working only 10% of the time. all new leased lines would have been CHEAP by comparison. And IMHO, no one really c a r e s when there is no own money involved).

          The working poor has been struggling. And S8 has 1001 rules and worries about “peeling paint” instead of reducing the burden to the taxpayers.

    • TJ Martin says:

      #1 Those reports assuming they are accurate and not an attempt to pacify and mollify the general public stated that less than 1/4 of all US banks and financial institutions would be able to withstand another financial crisis without immediate intervention . LESS .. than 1/4

      #2 Many of the banks not on the ‘ will not survive ‘ list are among the largest financial institutions in the US

      Suffice it to say …. point all the fingers you want at the EU/UK .. do your damnedest to blame Socialism etc – et al – ad nauseam

      But when it all comes down to it … despite all the hyper capitalism verging on Anarcho – Capitalism Rand(ian) wonder boys running the ‘ show ‘…emphasis on S-H-O-W ……

      ….We are in just as bad if not worse position than any of the northern EU countries … with a few here going neck and neck with the worst of the PIIGs

      The difference is … we hide it better .

      • Wilbur58 says:


        I never thought of that and it’s really quite interesting. “Anarchic-Capitalism”.

        I find “free markets” to be one of the most dangerous, specious concepts in human history. Sounds good, but isn’t. In reality, it’s a cover for anarchy-capitalism… and financial might-makes-right.

        I know that wasn’t the primary substance of your comment, but thanks for that.

        • cdr says:

          “I find “free markets” to be one of the most dangerous, specious concepts in human history.”

          Disagree. Otherwise, the best gamer of the system wins forever. With a free market, the best they can hope for is a time at the top before the mean reversion occurs. They almost won, but a Euro-collapse is certain eventually and even the Fed appears to be dancing to different music – ever so slightly.

          Assume a genius who creates a fake Utopia. Eventually, the genius fades into history and clucks of various competencies follow. This is an example of the free market reverting to mean. It works 100% of the time. Unfortunately, the fake Utopia creates problems, but at least they are temporary … soon to be replaced with a new fake Utopia.

        • chip javert says:


          So your considered opinion is “I find “free markets” to be one of the most dangerous, specious concepts in human history”.

          Just exactly what would you propose as an alternative?

        • Wilbur58 says:

          Hi CDR & Chip,

          I believe in regulated markets. I like having a public FDA, working to make sure our products are as safe as they can be. I want anti-trust laws in place that encourage competition and efficiency. I want limits on intellectual property that allow the originators to recoup their initial investments / r&d and perhaps a little more… but then it’s open season. (Our founding fathers believed that intellectual property should last only around 3 years. We now live in a world wherein Gene Simmons thinks he can own the horned hand-gesture that people make at heavy metal shows.)

          I believe that fraud out to be persecuted as a crime, for businesses large and small. False advertising must be illegal.

          I believe in having an SEC that actually punishes crime. I believe in a department of energy that would help our country achieve sustainable and renewable energies as best as possible.

          I don’t believe that public monopolies and natural resources should ever be sold off to private hands. Especially, no company should ever be allowed to pollute in areas that are a health risk to residents.

          I could go on and on with hundreds of reasons why we shouldn’t worship the specious notion of “free markets”.

          The most ridiculous truth at this point… is that for those who envision a “free market utopia”… um, we’re already living in it. The oligarchs own the government. It’s game over. They do whatever they want. It’s a free market for them.

          Good luck competing.

          (Oh, and Chip… if you were the one who said, “Hey, let’s have auto insurance companies run DMV!” I really wonder if you’re serious. Yeah, that monopoly wouldn’t lead to the most abusive and awful registration costs on planet earth.”)

        • chip javert says:


          I might quibble on a couple small points, but actually agree with the essence of what you say you want (a fairly enforced legal process with rules applying to all).

          I have never claimed capitalism should be allowed to operate without reasonable regulation. Gangster capitalism is just as wrong as socialism (and, in practice, are often hard to differentiate).

          I did use the DMV as an example of bad government (and never proposed insurance companies assume the function – you asked who could do their job, and I simply responded insurance companies already duplicate most of what the DMV does).

        • Wilbur58 says:


          Please explain the following:

          1) Why DMV is “bad”. What are they bad at?
          2) What would a better alternative be?

          You keep dodging this and just repeating, “DMV = Bad”.

          Every year, when I need to renew my car’s registration, I jump online and pay. The sticker arrives around one week later. It’s fine.

          This year, my license was up for renewal. I went to DMV without an appointment… the horror! I waited for about a half hour. I went up to the desk with my paperwork complete. That took only a few minutes. I went and got my picture taken, another two minutes. About a week to maybe a week and a half later, my new license arrived in the mail.

          If you have an appointment, it goes even faster.

          Given the volume of people that DMV must serve, I’d like to know where it fails so horribly in your view. How would you improve it? What would a private alternative be?

          If you can’t answer, I suggest removing ‘dmv = bad’ from your readied arsenal of anti-government rhetoric.

        • Wolf Richter says:

          I don’t even go the DMV to renew my license. I do it by mail. It’s a breeze, once every five years. I don’t understand either why people complain about the DMV. There are worse things in the world.

    • Scram J says:

      Wolf, any way you can find out EXACTLY how much the FED has earmarked or saved “for a rainy day” in the FDIC 250,000 insurance for personal bank accounts fund?….I highly doubt theres more than a fraction there of what they would need in an emergency situation….

      • Wolf Richter says:

        The FDIC collects fees from banks to cover deposit insurance. The Fed has nothing to do with it. During the big bad financial crisis, no insured depositor, including me (my 5% WaMu CD), lost a dime. There are other things to worry about.

      • JMiller says:

        Scram J,

        I will address what I think you are asking without trying to go into too much detail. The FDIC insurance fund has about $86 billion in it. This comes to about 1.20 percent of all insured deposits. The FDIC’s goal for the insurance fund is to eventually have an amount that is equal to 2 percent of all insured deposits. The FDIC believes 2% is adequate. Why just 2%? Because that is all that would have needed to cover all that was paid out to insured depositors in each of the previous banking crises. And even if the FDIC insurance fund does become depleted, the FDIC does have a line of credit with Treasury and they also have other ways to raise money.

        Now I have heard people have said that if the big banks fail the amount in the FDIC insurance fund will be no where near enough to cover the trillions of dollars in insured deposits. So why then does the FDIC think that 2% of all insured deposits are adequate in that situation? Because if any of the big banks becomes insolvent, the FDIC, after being appointed receiver of the failed bank, would create a bridge bank and place the assets and deposits into the newly created bridge bank which is solvent. Stockholders and bondholders will suffer losses. May be even uninsured depositors will suffer some loss . But insured depositors will be protected and the customers of the bank will be able to do business as usual, hopefully without much interruption. Since the insured deposits are now in a solvent bank, there is no pay out to insured depositors meaning the FDIC insurance fund will not be used if a big bank fails. At least not until the bridge bank is liquidated which may take 3-5 years.

        Wolf is correct. There are other things to worry. The main concerns with having money in the bank, as long as it is under the insured limits, is not bail-ins, or whether or not the FDIC will have the money to pay out to insured depositors. It is things like hyperinflation, the banking system shutting down may be because the power grid goes down, a nuclear war, etc… Something catastrophic. Some of those in the ALT media like to make a bigger deal out of bail-ins and of the relatively small amount that is in the FDIC insurance fund to unnecessarily scare people (depositors). All to often certain ALT media sites do not tell the complete truth and sometimes they even lie to make things sound worse than it really is.

        • Wilbur58 says:

          Back in 2008-2009, I was told by a bank branch manager that basically all deposits were secure. whether below $250K or not. This was after those initial bank failures in Pennsylvania or wherever when people really did lose amounts over that threshold. She told me that this was a banking insider secret of some sort.

          Is there any truth to this? Have you heard of this? It was relevant to the crisis only, not the future per se.

        • JMiller says:


          I have never heard of that. I do not believe it is true. I always hear that one should try to keep the amount they have in any one bank below the insured amount.

  5. raxadian says:

    So any way to close those scaming banks down without crashing the ecomy?

    This shows something we all knew, there are way too many banks, no way all of them are making money. And it turns out, many of them are not.

  6. michael Engel says:

    Martin Armstrong : the ECB will collapse.

  7. nick kelly says:

    So one question is: do you get your money out of the 120, or completely out of Italy?
    Who knows how interlinked the walking dead are with the live banks. Like zombies, they may turn live banks into zombies.

    The situation is a systemic threat to the Italian state and needs to be dealt with firmly, finally, and if need be, ruthlessly.

    • raxadian says:

      Don’t forget Spain too.

      Honesty when this crash happens it eill drag two countries and maybe more.

    • d says:

      If you have more money in ANY Club-med, Greek or french bank than you absolutely have to, if you MUST have an account in that part of the euro banking system.

      You need to consult a Psychologist, as you seem to have, Personal Financial, Suicidal Tendency’s.

      An “Ugly” So expensive for account holders, bust up in Club-med banking, is much more likely to be a, when. Than an, if.

    • Chris Wagner says:

      Agreed. But that’s the theory. Now look at how the ECB has acted? All those rules have been in place. But now look at how differently things have been handled (in Spain vs Italy). the Italian government throws billions at hopeless banks and the ECB chooses the domestic bankruptcy, knowing damn well this will mean a) >10 years delay and b) more billions from the taxpayers. c) Those bail in rules are for others only. Here is nothing to see, walk on by. Get lost! Stop thinking!

  8. chip javert says:

    The headline should read: “Many European COUNTRIES Would Collapse Without Regulators’ Help: Fitch”

  9. Recommend you YouTube search Yanis Varoufakis …. You can learn a lot. There are a great many libertarian fallacies supported in the comments. There is no big business without big government – they are symbiotic. Universal Basic Income and removal of all Insurances is a very large scale antidote to the 20th Century broken machinery unfit for 21st Century purposes. A better form of Socialism not Statism is the nearest we will see of panacea. Capitalism is a failure.

    • Hiho says:

      The funny thing though, it’s that these so-called libertarians only see big gov when it comes to welfare and environmental regulation, but it is ok to have the military suck more than half the federal budget and to keep feeding the surveillance state.

      But hey, we hate big gov!

      • Dan Romig says:

        I consider myself to be a ‘Modified Libertarian’ in that most of the Libertarian platform I agree with, bit I do believe we need safety nets for those who’re unable to take care of themselves. We do need environmental standards and other functions of government, but in essence, the task of Uncle Sam is to:
        1) Facilitate interstate commerce.
        2) Protect the rights of liberty, and property of the citizens of the USA.
        3) Protect the sovereignty of our nation.

        That the military sucks so much of the federal budget is a travesty. Look at Switzerland for a template of how to run a nation-state. In the words of Thomas Jefferson, “Commerce with all nations, alliance with none, should be our motto.” Hell, since August of 1964’s Tonkin Bay Incident, the USA has embarked on global death and destruction based on lies!

        As far as the surveillance state that keeps getting fed:

        “The rights of the people to be secure in their persons, houses, papers, and effects (emails, cell phone locations, calls & texts, plus what one reads on the internet), against unreasonable searches and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or thing to be seized.”

        Unfortunately, the Bill of Rights, and especially the 4th Amendment is now no better than toilet paper for traitors such as James Clapper to wipe their ass with.

      • Kent says:

        Capitalism is a government construct. It doesn’t exist without big government. Capitalism requires public monies to enforce the the private use of property, to enforce private contract, to allow for private immunity for shareholders, and to create the shareholding corporations. Debt is nothing but a government created and enforced obligation.

        Libertarians are, as a group, a very gullible group of people well indoctrinated by those who use the knowledge above for their personal gain. But they are generally nice. I was one as a college kid, but I grew up.

        • nick kelly says:

          ‘Capitalism is a government construct. It doesn’t exist without big government. Capitalism requires public monies to enforce the the private use of property, to enforce private contract, to allow for private immunity for shareholders, and to create the shareholding corporations. Debt is nothing but a government created and enforced obligation.’

          Or shortened: government is necessary for the rule of law

        • chip javert says:


          I was expecting something more profound from someone claiming “I was one as a college kid, but I grew up” than a rather tenuous grasp of the obvious.

          Turns out, government is required for ANY kind of social organization (excluding anarchy), so of course it’s required for capitalism.

          Private monies (taxes, fees, etc) are required by all forms of government.

      • chip javert says:


        A rather stunning statement of inaccurate information:

        Military spending as % of Federal budget = 16%
        VA spending as % of Federal budget = 4%

        Social Security + Medical & Health + interest on debt + education + transportation as % of Federal budget = 75%

        It only takes 30 seconds to Google this stuff.

        • Wolf Richter says:

          But wait…. the military just consumes funds. Social Security and Medicare generate their own funds from payroll taxes and redistribute them to those people who paid into the system all their lives. Huge difference!!!

        • chip javert says:


          I simply responded to Hiho’s accusative statement “…it is ok to have the military suck more than half the federal budget …” (this is just Hiho’s strawman statement because nobody had claimed it was true).

          If he meant something else, I assume he would have said something else.

    • chip javert says:


      So Venezuela is your solution to the horrors of capitalism?

      Good luck selling that.

  10. Trd says:

    If things are so bad then how can fed in USA say that nothing to worry about big banks, buy back your stocks, everything is safe and sound, financial crisis is over

  11. Stevedcfc72 says:

    Good question TRD. Not quite sure what to make of the giving back to Shareholders story.

    If the USA big banks have excess liquidity buying back stocks as a shareholder I would be quite disappointed. I would rather the money was used for something far better like reducing the staff numbers. Unless its telling us that there is no new business to go for, the market is saturated.

    • chip javert says:


      You consider reducing staff to be a good use of bank money? How about structuring the bank so your staff is profitably employed?

      Regarding “giving back to shareholders”: shareholders OWN 100% of bank profits, managers should pay dividends if they cannot find acceptable quality investments. Buying back shares should only be done what they are underpriced.

      Managers are generally reluctant to return excess capital to shareholders (Apple is a prime example, and will probably destroy lots of it fooling around with self-drive cars), and managers generally have a horrible record of using shareholder funds to buy their own stock when it’s overvalued.

  12. Stevedcfc72 says:

    Hi Chip,

    Hope you’re well.

    Get the quicker one out of the way, buy back of share at present seems not the right thing as they aren’t under priced at present, over valued good question which leaves as you say a big dividend.

    If you go down the dividend route rather than going for acceptable quality investments-growth then yes unfortunately less staff are required.

    That lower staff number trend will continue the more techy the banking sector becomes. Whilst not being a good use of money its reduces your biggest cost in your business.

  13. Stevedcfc72 says:

    Anyone see the story that over 80,000 people have applied for just 30 jobs in the Bank of Italy.

    These jobs weren’t great jobs either, salaries being mentioned 28,000 euro’s a year.

    Its due to the fact that these are permanent jobs and not temporary positions they have been so widely chased after. Not a great advert for the jobs market in Italy currently.

  14. R Davis says:

    In light of the ‘promotional video’ titled – Yanis Varoufakis blows the lid on Europe’s hidden agenda – Youtube.

    1. Has Wolf Street had an opportunity to watch it ?
    2. What is the reaction of Wolf Street – to Prof. Varoufakis account of the meaningful, methodology that motivates the European Union Leadership to perform.
    3. If Prof. Varpofakis account of the negligent & self- motivation of the EU Leaders in ‘mismanaging’ the European Union is correct …
    4. What hope is there for the 28 EU member nations & further – the GLOBAL ECONOMY – to function in a sustainable & rewarding fashion.
    5. Or are we all doomed in the hands of the Devil May Care – self serving mode of operations that present as responsible economic leadership.
    Surely we all all on a one way train to inevitable doom.

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