7 Reasons Why European Banks Are in Trouble | Mises Wire

While the euro crisis seems far away as all Eurozone countries ran government deficits below 3 percent of GDP, there is one problem for the euro that quietly keeps growing: the unresolved banking crisis. And this is not a small problem.
— Read on mises.org/wire/7-reasons-why-european-banks-are-trouble

An under reported problem

Bondholder Suing Spain for the Bail-In of Banco Popular | Armstrong Economics

It was only a question of when, but now those investors who lost 100% of their money in Banco Popular in Spain are filing a lawsuit demanding answers in a court filing in New York seeking information from the purchaser of the stricken bank – Banco Santander who paid just €1 to take over troubled rival Banco Popular. This entire affair demonstrates why European bank shares and bonds are FAR TOO RISKY to own. The government demands that European banks raise capital. However, if you invest in a European bank and there is a problem with more bad loans than expected, they can seize the bank and sell it for even €1 and you have lost all rights to your investment. I have warned many times, you cannot play around with governments. They can change the law retroactively, do whatever they desire and will NEVER be prosecuted for even outright fraud. They are the Devil and you just cannot reason with power gone crazy.
— Read on www.armstrongeconomics.com/international-news/spain/bondholder-suing-spain-for-the-bail-in-of-banco-popular/

Rightfully so

Has Draghi Just Lost It? | Armstrong Economics

QUESTION: Why are long-term yields on risky European debt below that of US Treasuries? Is this the European bubble madness? HN, Frankfurt ANSWER: This is unquestionably a bubble, but the buyer has been the ECB (European Central Bank). Yields on risky European bonds have been driven below the yields of long-dated US securities. The financial system may appear to be riddled with anomalies, distortions and erroneous prices, but all of those labels assume it is the madness of crowds rather than the government. Mario Draghi has created the worst possible financial nightmare perhaps in modern history since governments began borrowing in the 12th century. These are not driven by a free market, but one that is manipulation of a central bank gone absolutely mad. The average return on European junk bonds is below “risk-free” US government bonds. This is completely driven by the insanity of the ECB. In fact, Draghi purchased around $ 2.6 trillion in securities since his Quantitative Easing began in March 2015. He assumed that this would stimulate the economy. However, all it has done is kept the member states on life-support. He is trapped and has no way out, which is why he has come out and said that the ECB will reinvest when the bonds they hold mature. There will be no end to this madness and he has single-handedly wiped out the bond markets. There is no free-market remaining so the question becomes – how will governments ever sell its debt in the future?
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/has-draghi-just-lost-it/

Doubling down

London Remains the Financial Capital for Market Execution | Armstrong Economics

QUESTION: Mr. Armstrong; You have said that Brexit is good for Britain and that the financial center could never move to Paris or Frankfurt and survive. Can you elaborate on that topic for us Brits? GS ANSWER: It is amazing that the politicians are so clueless and the heads of the banks are far too often just talking politics. London is bigger than all the financial centers in Europe COMBINED! Because of regulation being consolidated in Britain, it even beats New York City – a fact that is often overlooked. The United States has SEVEN regulatory agencies that compete with each other for power compared to one for Britain. London still wins hands down.Neither Frankfurt nor Paris even has the infrastructure to function as London does.
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/london-remains-the-financial-capital-for-market-execution/

London vs New York as a financial center.

Cologne Institute of German Business Warns of Deposit Protection May Not Survive in Europe | Armstrong Economics

The Cologne Institute of German Business sees in the planned European deposit insurance is simply incapable of proving protection against a bank crash in Europe. The EU deposit guarantee is simply not practical under any concept of austerity. The Eurozone still has inherent significant risks in the balance sheets of European financial institutions. This is primarily because where the USA took the bad loans from the banks and stuffed them into Freddie and Fanny, in Europe, the bad loans are still on the books of the banks. Systemically, this has been the leading problem why Europe has been unable to recover and Quantitative Easing merely robber savers of their income and it failed completely to stimulate the economy. Banks were still reluctant to lend and people would not borrow if they did not have confidence in the future. The proportion of bad loans is so different between the individual banks that a joint deposit guarantee leads to a permanent transfer mechanism. This is a complete disaster and pulls the EU apart. As the worse banks are in Southern Europe, Northern Europe will see this as a bailout for the South. Therein lies the very crisis and why the structure of the Eurozone from the outset has been such a complete disaster. All national debts of member states should have been consolidated and that should have become the European National Debt. Thereafter, member states should have been on their own. But that common sense design was ignored for political purposes. Any consolidation of debt was seen as a bailout for weaker member states. This inherent disparity simply remains intact with no solution in sight. The recapitalization costs for eliminating non-performing loans (NPLs) just in Cyprus will still consume 2.4% of GDP in that member state. In Greece, any recapitalization will cost 2% of GDP and in Italy 0.8%. The disparity among members smacks of transfer payments which have been a sore subject behind the design of the Euro. A closer look at Italy reveals that more than 10% of the balance sheets of Italian banks constitute bad loans. The cost to bailout Italy is put at €189 billion while Spain comes in around €100 billion and even France will be €85 billion. In Germany, the bad loans amount to about €48 billion While nobody wants to talk about it, the obvious issue is why has Deutsche Bank not been merged with Commerzbank? The bad loan problem a derivatives problem would simply not be solved even by such a merger. Is it any wonder why politicians have looked to bail-ins rather than bailouts?
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/cologne-institute-of-german-business-warns-of-deposit-protection-may-not-survive-in-europe/

Scary