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The problem in the US currently is as well not, that there is one big bank, that is bankrupt, but that all banks are under pressure.

The LB's are already suffering losses  courtesy of the financial crisis in the US due to their buying of toxic paper and exposure to US banks. If DB were to fail, so would they due to exposure to DB.

by MarekNYC on Tue Sep 23rd, 2008 at 12:43:19 PM EST
[ Parent ]
The LB's are already suffering losses  courtesy of the financial crisis in the US

Negligible for the scenario. Their losses are big, compared with their earnings(in the hundreds of millions range), the numbers are very small compared with the German GDP. I argue, that the state in case of a banking crisis could recapitalise the LBs massivly, let's say with overall 300 bn Euro. A couple of billions lost by the LBs on the toxic waste is really peanuts compared with that.
As the LBs are state owned, there is no stock holder moral hazard. The biggest problem wouldn't be the underlying economic facts, but the EU commision. In case of a severe crisis, I doubt, that the EU commision would stop a rescue of the banking system, even if it requires measures, which are competition distorting.

Even without knowing details of micro economy, it is difficult for me to believe, that a nation, in which banking is not a major branch, which has a savings rate above 10% and low private debt to income levels, should get into severe trouble, because of a single bank failure, while the US with its consumers in debt above their head should be able to manage a bankrupcy of a thousand of their banks(which would happen without any help plans), just because every single of these banks has a balance sheet smaller wrt the GDP than DB to the German GDP.

The fears for DB were because of the 60 times leverage. So a break down of DB wouldn't mean they have losses of 2 trillion, but maybe 40 bn (as USB so far). That's peanuts for rescuing the banking system anyhow. If taking over the 2 trillion balance sheet would count as 2 trillion bail out, then taking over F&F in the US was a more than 5 trillion bail out, but it is counted as 200 bn bail out so far, as this are the funds, which are likely needed to keep the GSEs up.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Tue Sep 23rd, 2008 at 01:37:31 PM EST
[ Parent ]


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