The end of the Euro | 276 comments (276 topical, editorial, 0 hidden)

FT Alphaville: Funding stress in Euroland, continued

Funding really becomes a concern where it impacts the long end, i.e., if a bank cannot independently fund in the senior unsecured debt markets, it does not have a long-term viable future. While issuance has been negligible since July, this is because large EU banks have pre-emptively funded typically 70-90% of their 2011 needs, limiting the need for additional issuance into troubled markets. BNP is 100% complete, while SocGen has completed 93% of its 2011 funding.
...
About that long-term issuance Nomura mentions at the top by the way -- it's worth reprising some recent charts from Morgan Stanley bank analyst Huw van Steenis. They show the recent slowdown in markets and also the funding needs into 2012:

There follow two very scare charts, one of bank funding drying up to a trickle in the first half of this year, and the other of all the European banks' debt rollover needs for the next few years.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Aug 11th, 2011 at 02:10:46 PM EST
[ Parent ]

Re: The end of the Euro (none / 0)

The advantage of short-term funding is to increase leverage and short-term "investments-per-year."

The disadvantage is when things turn sour leverage works against you and those short-term investments turn into near and long-term investments you have a hard time, or find impossible, to get out to pay Due and Payable Accounts.

Migeru and kcurie have been working on the math of this and Migeru talks about it here.

Ever since I learnt about confirmation bias I've started seeing it everywhere

by ATinNM on Thu Aug 11th, 2011 at 02:52:47 PM EST
[ Parent ]

Re: The end of the Euro (none / 0)

Well, in a properly run central banking system, the CB should act as market maker of ~~last~~ first resort between long and short term funding. So the problem is not, in a properly run central banking system, in the nature of short-term funding (of course in the central banking system we actually have, we are saddled with the ECBuBa...). The problem is in the nature of the geometric effect of leverage upon the solvency of holders of garbage assets.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 12th, 2011 at 05:58:54 AM EST
[ Parent ]

The end of the Euro | 276 comments (276 topical, 0 editorial, 0 hidden)

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