Monday, May 28, 2012

No magic potion for eurozone banks

by Robert Peston

BBC News

May 28, 2012

As I mentioned a couple of weeks ago, the biggest short-term risk to the stability and cohesion of the eurozone is that banks in the financially stretched southern European countries run short of cash, as their depositors and creditors withdraw their money faster than it can be replaced by the European Central Bank.

The slow and silent run on banks in Italy and Spain - and Greece, of course - is a reality, according to bankers and regulators, although not yet a lethal one.

It has gained momentum with the rising probability of Greece leaving the eurozone, because that has increased the associated risks of loss from default or devaluation for those with money in banks deemed more likely (than others) to follow Greece out of the currency union.

Interestingly, British banks with subsidiaries in these countries are beneficiaries of this disenchantment with the local banks: they are gaining deposits at the expense of indigenous rivals.


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