Have you put money in German banks. Read this.

Tora Bora

Undoubtedly many Irish people have moved money to German banks in Germany, to protect their savings from a potential melt down in Irish banks. Probably a good move, but not without some risks. Sobering article I would say.

http://online.wsj.com/article/SB10001424052748704471904576228232654224042.html?mod=WSJEurope_hpp_MIDDLE_Video_Third

By NICHOLAS SPIRO

Historically, German debt has benefited during periods of market uncertainty in Europe. But this may be changing as the markets wake up to the risks to the German fisc posed by both the serial bailouts of euro-zone sovereigns and the potential costs of recapitalizing the country's own banking sector.
In the years preceding the launch of the euro in 1999, in particular, German bunds were always Europe's haven of choice for investors. And throughout most of the euro zone's sovereign-debt crisis, they have lived up to their reputation. But since the crisis intensified toward the end of last year, yields on 10-year bunds have risen by 100 basis points. Evidently even German debt is not risk-free.
The spike in bund yields partly reflects the growing recognition among investors that Germany is paying a hefty price for being the EU's chief paymaster. The longer the crisis drags on, the more likely it becomes that Germany will have to cough up billions of euros more in guarantees and loans to help rescue the euro zone's distressed economies, especially if Spain were to seek assistance.
But the rise in German interest rates also reflects a threat to Germany's balance sheet from within Germany itself—one that Chancellor Angela Merkel's government would rather not talk about at all: Any restructuring of euro-zone sovereign debt could impose heavy losses on the German banking sector, possibly requiring Berlin to recapitalize its own financial sector even as it remains on the hook for sovereign bailouts elsewhere in the currency area. By framing the bloc's crisis-resolution debate in terms of thrift versus profligacy, Germany is seeking to draw attention from the potential losses in its banking sector, the true scale of which has yet to be determined.





As the largest contributor to the EU's bailout fund, Germany is entitled to demand that the euro zone's laggards carry out long-delayed structural reforms. Yet the bloc as a whole would benefit greatly if Germany practiced what it preached, especially when it comes to banking reform. It is no coincidence that Europe's first financial institution to fall victim to the global credit crunch was IKB, a German lender that Berlin rescued in 2007 from its exposure to U.S. subprime mortgages. Since then banks, particularly public ones, have become the Achilles' heel of Germany's economy, a weakness the government has sought to downplay in its response to the debt crisis.
While financial-market pressures have focused on Irish and Spanish banks, German lenders have long been the elephant in the room. Prior to the crisis, Germany had one of the most leveraged banking sectors in the OECD, with an average capital-to-asset ratio of only 4.2% between 2000 and 2007, according to the OECD. Yet this was flattered by risk-weighting rules that underpriced credit risk and allowed German banks to invest heavily in asset-backed securities. The Landesbanken, banks jointly owned by savings banks and regional governments, were by far the most reckless.
A pernicious combination of poor corporate governance, low profitability and the lack of a viable business model caused the Landesbanken to become, in the words of the IMF, "a continuous drain on the public finances and a source of financial instability for Germany." The long-running saga of WestLB, whose need for frequent injections of state aid is forcing it to shrink its balance sheet under orders from Brussels, is the most egregious example. What is more, the capital bases of the Landesbanken are stuffed with hybrid capital that, according to Basel III rules, no longer counts as the best form of bank capital.
It is small wonder then that Germany is cagey about Europe's second set of bank stress tests next month—which, this time round, will include a stricter definition of core capital. The Association of German Banks accuses the new European Banking Authority of jumping the gun in moving toward Basel III standards that are to be phased in by 2019. More worryingly, it does not believe that a poor test result should trigger a swift recapitalization. That the Landesbanken are regionally owned lenders, and that German banking supervision is notoriously politicized, further hamper reform.
Germany's most helpful proposal to resolve the euro zone's festering debt crisis—its plan to make private creditors share the burden of future losses—proves that it sees the writing on the wall for Greece, Ireland and possibly Portugal. It now needs to show more self-discipline in restructuring and strengthening its publicly owned banks. It could do worse than take a page out of Spain's book. Although under fierce pressure from the markets, Spain's government is forcing the country's troubled regional savings banks to meet even tougher capital targets than under Basel III. Surely this ought to please the austere Mrs. Merkel?
Mr. Spiro is managing director of Spiro Sovereign Strategy.

syklops

I assume you mean PostBank as well?

Gumbo

barely have any money in me pocket at the end of the week, never mind having enough to send it to the Germans to watch for me

later12

I must admit that I don't take the original article entirely seriously and while it raises some valid points about Basel, it seems a little biased. On one hand while the author states that many of the German banks in question are local and regionally owned, he fails to point out the glaringly obvious point that this infers less critical mass in destroying or even hurting the German, let alone the European banking system and instead insists that this solemnizes the extent of the problem. That is not necessarily so.

Like the Spanish cajas, of course, the possibility of a German banking crisis does exist, but the chasm between the German Landesbanken and the Spanish Cajas is wide and deep and we must keep in mind that the fundamental German economy remains in rude health; this has a positive feedback effect.

One thing that the author didn't unfortunately mention was the regulatory burden on European banking systems in the past, particularly those same Spanish Cajas in the 1960s when Franco's overly regulated regime and excessive capital demands did cause a banking crisis. I think that is a historical incident which should be to the fore in the minds of those who now seek to overreach the arm of regulation into the European banking system.

later12

kceire wrote: »

barely have any money in me pocket at the end of the week, never mind having enough to send it to the Germans to watch for me

This reminded me of the point that up until now, and into the short term future the European banking crisis has largely been a middle class affair. I don't know what it is about white middle class European society that provokes such silence amongst angry men (and broadly, this is to be seen as a resounding success of civil society), but I believe a change in the crisis will arrive when the crisis arrives, in earnest and in greater magnitude, to more strata of the European middle classes i.e. when the middle class begins to lose its position in practice.

erictheviking1

Savings? I'm married with kids. Last time I had savings I was single.:D