Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
financialsense.com / BILL WITHERELL via cumber.com / 02/29/2016
Last week, European Central Bank (ECB) President Mario Draghi, responding to market concerns that had battered the shares and bonds of Eurozone banks, insisted that “We have to acknowledge that the regulatory overhaul since the start of the crisis has laid the foundations for durably increasing the resilience not only of individual institutions but also of the financial system as a whole.” No doubt that overhaul has been a positive development. But we are not completely reassured that the actions taken with respect to either timing or dimension have been sufficient to keep the currently visible strains from worsening into a serious crisis that could cripple the eurozone recovery.
A major concern is the legacy of nonperforming loans, estimated at some 900bn euros, still on the balance sheets of European banks, with Italian banks accounting for a third of these bad loans. Since the financial crisis in 2008 the Europeans have lagged far behind the US in addressing this problem, with reforms promised but little achieved. The Italian government is now faced with the need for urgent action to clean up bank loan books in a way that is acceptable to both the Italian public and European Union authorities (that is, the cleanup cannot involve state aid or subsidy prohibited by EU rules). The Italians are moving forward with a plan, accepted by the EU, to issue guarantees that should help banks sell loans to third parties such as hedge funds. This measure may help in some cases but probably will not head off some further Italian bank failures.
European banks are not operating in economies that are favorable for easing the nonperforming loan problem. Economic growth in Europe is projected to remain sluggish, particularly in the core euro area, with investment remaining weak. Slower global growth, as reflected in the latest OECD Interim Economic Outlook, means lower demand for European exports. The OECD notes that, “In several euro area countries, high private sector leverage and high levels of nonperforming loans hamper the credit channel of monetary policy transmission.”
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Thanks to BrotherJohnF