A really fascinating evaluate by Éric Dor, Chief Economist at IESEG, summarizing the exposure of French and European banks to French debt. French banks are naturally in first place, with very excessive ranges of publicity. Within the occasion of a debt disaster, i.e., if the French authorities had been unable to finance itself, the worth of those belongings would plummet, immediately placing these banking institutions in danger, if not bankrupt.
Because the economist notes: “It’s completely crucial to forestall any depreciation within the worth of public bonds issued by France, to keep away from losses for the banks and thus shield the deposits of the inhabitants, each in France and overseas. Management public debt for the collective curiosity!”
An quantity of lower than 5 billion euros could also be thought-about manageable, however some European banks would nonetheless have quite a bit to lose, corresponding to Italy’s Intesa Sanpaolo, which has virtually 10 billion euros of French debt on its steadiness sheet.
The BPCE group (Banques Populaires, Caisse d’Epargne, Natixis) holds 182 billion euros of French debt, a huge quantity that displays an incapacity to diversify its belongings, a elementary ability for a banker, it appears. It additionally displays the group’s incapacity to do its job of financing the financial system: what is the level of accumulating financial savings if you are going to make investments them in Treasury bonds? We would as nicely permit the French to purchase them instantly, which might save on the working prices of this banking construction! Above all, this displays what is named the “crowding-out impact”, when the State captures financial savings to the detriment of corporations and the productive financial system. That is one more reason why French progress is anemic.
With half as a lot, round 90 billion euros, the Banque Postale comes second. Managed de facto by the federal government, it helps to recycle its debt. Logical. Crédit Agricole (together with LCL, previously Crédit Lyonnais) follows shut behind with 82 billion euros, a debt more likely to take it down. Subsequent come BNP Paribas and Société Générale, with round 40 billion euros every, nonetheless a big stage.
Crédit Mutuel comes final, with a surprisingly low determine of solely round 15 billion euros. However that is a great factor: once I’m requested which French financial institution is the least dangerous, I say Crédit Mutuel. It does not have a market financial institution more likely to endure heavy losses, and the amount of French debt it holds would stay absorbable within the occasion of a disaster.
If banks maintain a lot authorities debt, it is largely out of authorized obligation, and that is the perversity of the Western banking system. In reality, the Basel III accords are imposed on G20 international locations, obliging their banks to carry sovereign bonds, thought-about “protected”, as guarantors of their steadiness sheets and their shoppers’ deposits. States’ money owed are deemed stable, based mostly on the concept they are going to by no means go bankrupt… till such time because the nation can not repay its debt and defaults. The worth of its debt then falls to zero. This type of occasion has occurred earlier than: Mexico in 1982, Russia in 1998 (which led to the chapter of the LTCM fund and virtually induced a world banking disaster), Argentina in 2001. And even when the banks wished to purchase a number of dozen tons of gold, which might be a lot smarter, they can not, as a result of gold is taken into account dangerous. They must block money in return, which might in the end show too expensive. That is how our incestuous system between governments and banks works…
However let’s return to our desk to take a look at two different French monetary establishments. Bpifrance is meant to finance startups, nevertheless it really holds 18.5 billion euros of French debt. An enormous, unjustifiable quantity. Worse nonetheless are the 45 billion euros held by SFIL, the Société de financement native, which is devoted to financing the native public sector, however which in actuality primarily funds the central authorities! The load of those two establishments displays a problem to find shoppers for French debt, or at the least a want to not rely too closely on international sources. In consequence, the federal government is creating two washing machines…
In brief, if France defaults on its debt, you will not be capable of reduce out the BRRD directive (checking account seizures by failing banks).
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