Big Bank Bailouts Are Back—But Big Enough?
Dec. 20, 2016 (EIRNS)—An indication that a trans-Atlantic financial crash is again approaching, is that big bailouts of banks still too big to fail, are being planned and carried out. Though now supposed to include "bail-ins" of bondholders as part of the package, there is no question that big bailouts are back.
Italy’s "new" government on Dec. 19 asked Parliament to raise its debt ceiling by €20 billion, so that the Treasury could borrow that sum and create a fund to be ready to bail out the Italian banking system. Though the government only floated the request last week, the amount has already jumped by €5 billion, indicating that Gentiloni government sees the bank crisis developing.
Bank stocks naturally rose Tuesday in response; but Moody’s Ratings Service on that day downgraded the entire banking sector to a negative watch. It said its stress tests, taking into account the ongoing sharp rise in interest rates, found Italy’s big banks even weaker than those of Spain, Portugal, or Greece. As already reported, a few financial managers in the United States have forecast that several large Italian banks, including Monte dei Paschi di Siena and Unicredit, are heading for collapse.
Also Monday, Ukraine took over and bailed out its largest bank, the Privatbank of right-wing oligarch Igor Kolomoisky, with a $5.5 billion infusion of capital. The International Monetary Fund told Kiev that this was a condition of any further assistance. The bailout/bail-in combined amount is very large by standards of Ukraine’s economy—the central bank’s total reserves are just $15 billion. A bail-in of some bondholders is included, and if they are European institutions, there will be a legal fight.