Report on European Banks Shows Disaster Coming
March 8, 2017 (EIRNS)—Yesterday's Bloomberg report, which focused on European banks’ failure to lend into the economy, presented, in addition, a completely pathological European financial system which is ready to crash. Four aspects of the report make clear how dead are the European economies, and how near their banks to a collapse which will take down the City of London and Wall Street.
First, the deposits of Europe’s non-financial companies in the banks rose by an extraordinary 18% in 2016, and by $848 billion since 2014, despite those banks paying no interest and in some cases charging negative interest on those deposits. The companies, perceiving no demand or prospects of economic activity around them, are paying to hoard their cash rather than use it.
Second, the banks themselves put an additional $1.16 trillion into the the European Central Bank as "excess bank reserves" since 2014, despite having to pay the European Central Bank (ECB) negative interest to keep those reserves. They had no use for lending it, also seeing no demand. Insane policies on budget and economic austerity throughout the entire Eurozone have eliminated demand for credit, and the big banks have done the rest.
Third, the major banks in the "northern" European countries and in London, also used the $1.8 trillion they received from ECB purchases of bonds from them since 2014, just like the $848 billion in additional customer deposits, for anything but lending. Their lending increased by only about $175 billion in that period and is still below the level of 2012. Aside from capitalizing themselves with it and paying it to their shareholders to increase their stock price, the 20 largest European banks dramatically increased their reserves against bad-loan losses, by 27% in 2016 alone.
These banks, not surprisingly, remain unprofitable and are getting more so. Income of the 20 largest Eurozone banks fell 5% in 2016 and their net profits dropped by 50% to 33 billion euros for the 20 banks combined. (For comparison, Wells Fargo Bank alone, despite a very damaging scandal, made more than half that much profit in 2016. This is the critical problem which threatens to set Deutschebank’s huge derivatives bubble exploding at any moment.
Fourthly, the capital flow continues and is accelerating from the banking systems of the superindebted countries such as Italy, Spain, Greece, and Portugal, to the "strong" countries’ banks. This is anything but strength; it guarantees one of those superindebted countries’ systems will trigger a general bank blowout—unless quickly reorganized on Glass-Steagall principles and saved by national credit issuance to create productive demand.