In response to the crisis at Hypo Bank, Germany said it will guarantee bank deposits. Note that no action was announced regarding Hypo, whose collapse is expected in the next few days if a rescue is not in place. Hypo is not a depositary institution, but it is sufficiently large (almost as big as Lehman) that its failure would be damaging to an already-stressed banking system.
From MarketWatch:
Germany became the latest and by far the biggest European country on Sunday to explicitly guarantee the deposits in banks held by their citizens.
Chancellor Angela Merkel said in an announcement Sunday that she could not allow problems around Hypo Real Estate, a commercial property lender, to affect the broader system.
Ireland and Greece took similar moves last week, though Germany’s move is only aimed at individual and not company deposits.
Merkel attended a meeting on Saturday held by French President Nicolas Sarkozy in which Germany, France, Italy and the U.K. said they would try to coordinate their responses to the current turmoil in global financial markets but did not set up formal bailout fund.
More detail from Bloomberg:
The German government offered to fully guarantee personal savings accounts in a bid to ease concerns about the stability of the nation’s banking system amid the global credit crunch.
“Finance Minister Peer Steinbrueck said today that people in Germany will not lose a single euro of their savings because of this crisis, and that statement applies as of today,” said his chief spokesman, Torsten Albig, in a telephone interview from Berlin.
Until now, private savings accounts, including the accounts of small, privately held companies, have been guaranteed by 180 banks in Germany, the BDB private banks group said on Oct. 2. The guarantees of the banks covered 90 percent of an account’s balance to a maximum of 20,000 euros ($27,500), the group said.
Bloomberg also provided, in a separate story, an update on the Hypo rescue talks:
The German government led talks to salvage a 35 billion-euro ($49 billion) bailout plan for Hypo Real Estate Holding AG after the ailing property lender said commercial banks withdrew their support late yesterday.
`I’m pretty shocked that this bank’s management has revealed another liquidity gap of an unforeseen size,” German Finance Minister Peer Steinbrueck said in Berlin today in comments broadcast by ARD television. “We will have to start over again from last weekend’s meetings. Hypo Real Estate has to be stabilized otherwise the damage would be unpredictable.”
The government and the Bundesbank have repeatedly said that Hypo Real Estate, the nation’s second-biggest property lender, is too big to fail. The negotiations to save it occur as the Belgian government is attempting to rescue Fortis, that nation’s largest financial-services company, after a previous bailout also went awry amid the intensifying global credit crunch…
The government won’t raise the size of its pledged guarantee, newswire Deutsche Presse-Agentur reported, citing Volker Kauder, parliamentary chairman of Chancellor Angela Merkel’s Christian Democrats. Private banks promised to contribute their share to a rescue today, he added, without elaborating, DPA said.
More detail from the Wall Street Journal, that private banks are being muscled back to the table:
Finance Minister Peer Steinbrueck, who spoke at the press conference with Merkel, said the government was working on an “institute-specific solution” to Hypo’s near-bankruptcy. “We have to start again where, at the end of last week, we thought we had a solution,” he said….
The German finance ministry doesn’t believe that the rescue of Hypo will only involve the government, a finance ministry spokesman said Sunday.
“The minister has made it clear: We won’t refrain from having the private banks participate in an adequate way,” Mr. Albig, the Finance Ministry spokesman, said. A solution must be found by the stock exchange opening early Monday, Mr. Albig added.
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Without being an economic specialist:
Isn’t the lack of transparency and trust the reason for the deteriorating situation and the effects on “main street economy”?
Transparency seems difficult to achieve given the complexity of products in circulation and the unwillingness of market players to concede actual exposure to them.
Lack of trust means market players do not interact with each other thus affecting all kinds of financial transactions including “main street economy”.
What should a state government do?
Top priority should be to keep the “main street economy” running. To achieve this, a working financial system is necessary.
Since the financial markets are too entangled with each other, why not pick the market player with biggest “main street involvement” in terms of branches, deposits, main street credit facilities etc. and nationalize it? Bail out one player only, making it a “state bank”.
Then use taxpayer money to finance this back-up financial system trying to take care of “main street economy”. This way taxpayer money is spent supporting a living economy instead of buying/guaranteeing dead and near worthless assets with no guarantee that everything goes back to normal.
At the end of the day the state run bank could be privatized again, thus hopefully recovering the “taxpayer investment” in ….basically themselves.
Sounds Swedish. It worked before, so why shouldn’t it work in all EU countries or on a European coordinated level? The question remains, how an orderly transfer of deposits and “main street credit arrangements” can be ensured as most other institutions will likely fail.
Protecting consumer deposits and not business deposits. That should work.(not)
I’m still waiting for the plan that forces consumers to start spending, other than on food and normal monthly bills.
In these banking systems, the consumer must request more credits than they did the previous months thus allowing banks to show growth.
I have no clue if this is in a blog here:
UniCredit Trading Halted Because of Rumors
http://www.nytimes.com/2008/10/0…=rssnyt& emc=rss
The giant Italian and pan-European lender UniCredit declared Wednesday that it was well capitalized and was being damaged by market speculation as its shares were suspended from trading in Milan.
In a statement that had been requested by regulators after recent stock declines, the bank said that it would sell some property assets to raise its capital ratio.
The Italian stock exchange operator, Borsa Italiana, suspended trading in the shares early Wednesday after they opened sharply lower. They had fallen 22 percent this week. Trading of the shares was suspended Wednesday after they fell 1.8 percent.
UniCredit owns HypoVereinsbank of Germany and Bank Austria as well as a lender in Poland. A collapse of UniCredit would raise questions about the structure of a bailout that involved multiple divisions in different countries. The rescues this week of Fortis, Dexia, Hypo Real Estate of Germany and Bradford & Bingley in Britain were relatively simple, as they had mainly exposure in their local markets.
“In the current environment, contagion can spread so quickly,” said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris. He said speculators might be focusing on UniCredit because of its aggressive expansion policy in recent years and its pan-European nature.
UniCredit, which is the biggest Italian bank by assets, said Wednesday that it would spin off the real estate holdings to raise its core Tier I capital ratio, a measure of financial strength, to 6.2 percent by the end of the year — an increase of 0.27 of a percentage point.
History doesn’t repeat but it rhymes . . .
http://www.cambridge.org/catalogue/catalogue.asp?isbn=0521365376
Wall Street’s Great Deflation
http://www.thenation.com/blogs/n…s/notion/ 336722
posted by WILLIAM GREIDER on 07/14/2008
Phil Gramm, the senator-banker who until recently advised John McCain’s campaign, did get it right about a “nation of whiners,” but he misidentified the faint-hearted. It’s not the people or even the politicians. It is Wall Street–the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events.
It’s a bit annoying that anytime someone posts an internet link (url), it is cut and half of it is gone. Yves, is there a solution to this problem? Perhaps in the parameters of the blog.
The UniCredit story is old news. Trading in this stock resumed Wednesday after lunch and it has since been quite steady:
http://tinyurl.com/unicredit
In responds to anonymous at 5:23 PM
It takes discipline in creating a link with tags like so
explanation text
simple cut and paste doesn’t work
See for example this link
How capitalism killed democracy
> The UniCredit story is old news
That would explain the emergency action today, then, right?
Anon of 5:23 PM,
You can also just put in the URL as a address, I confess I do that myself sometimes in comments when I am in a lazy mood or in a rush to get another post out.
Sooo in Germany the public authorities muscle the private banks, because they have democratic socialism. In the US by contrast, the private banks muscle the public authorities because we have corporate fascism. Why is it that we think we’re so smart over here, tell me again? I doubt anyone else sees us that way . . . .