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Who Has Most ‘Level 3’ Derivatives in Europe?

April 27, 2017 (EIRNS)—The Italian Banking Association (ABI) published figures for Level 3 assets in the European Union, which show that the highest proportion of capital belongs to German banks, with 35.5%. Next come British banks, with 25.4%, and French banks with 20.5%. Italian banks, which are being vilified by the EU because of their losses on commercial loans, have "only" 15%.

Level 3 assets are derivatives that have no market price; they are much more illiquid than non-performing loans (which have physical assets as collateral). They are assets collateralized with debt, so toxic that nobody would purchase them. The European Cenbral Bank and the European Banking Authority (EBA), however, have allowed too-big-to-fail banks to price Level 3 derivatives according to the banks’ own models, and turn losses into assets.

A resolution citing the ABI report and calling for changing the EBA stress test methodology has been filed at the Finance Committee of the Italian Chamber of Deputies by Deputy Sebastiani Barbanti and others from the Democratic Party, calling on the government to push for a change in European stress test methodologies, "giving priority on assessing Level 3 assets" and "organizing an ad hoc stress test."