It’s not dead, it’s resting

Financial Times 22 November 2011:
In the longer term lending markets, Europe’s banks have largely been unable to raise new senior unsecured debt, the bread and butter of their funding, in recent months as investors fret over the effects of the eurozone crisis.
Since the beginning of July, the region’s banks have sold a collective €11bn of senior unsecured debt according to Société Générale data. That compares to €121bn raised year to date, and about €150bn raised annually in 2009 and 2010. In the longer term lending markets, Europe’s banks have largely been unable to raise new senior unsecured debt, the bread and butter of their funding, in recent months as investors fret over the effects of the eurozone crisis.Since the beginning of July, the region’s banks have sold a collective €11bn of senior unsecured debt according to Société Générale data. That compares to €121bn raised year to date, and about €150bn raised annually in 2009 and 2010.

Irish Times 19 November 2011 processology on the 2010 Irish IMF/EU program  —
Tension surfaced as [Brian] Lenihan [Finance Minister] sought to raise the possibility of imposing losses on senior bank bondholders, to ease the burden on the State, which the ECB opposed but the IMF believed would be feasible. Fearing an outburst of contagion in wider bank markets, the ECB insisted that a “relatively small amount of money” was at stake against the risk of destabilising the total stock of European banking debt. But the IMF refused to yield, saying the question should not be ruled out. “The idea smouldered in the background,” says a source. The ECB kept seeking to have the notion taken off the table entirely while the IMF and the government sought the opposite. Legal advice was taken, yet there was no end to the stalemate.

So the ECB is requiring Ireland to make payment in full to legacy bondholders in Irish banks with the rationale of not scaring the market for senior unsecured bank debt … a market that is now, of its own accord, dead.

4 thoughts on “It’s not dead, it’s resting

  1. Pingback: FT Alphaville » Further reading

  2. Pingback: European Banking System: Not Dead, Just Resting « Popular Parrots

  3. You can only impose losses on senior creditors if there is a winding-up law that allows it. Under a classic commercial bankruptcy, senior creditors own the debtor’s assets and can do with them as they wish. Since the receiver (the government) wants to kep the bank in business, they do not want it liquidated or sold to whomever. So, unless they can arbitrarily decide what the senior creditors get, they have to leave them alone.

  4. “Since the beginning of July, the region’s banks have sold a collective €11bn of senior unsecured debt according to Société Générale data.”

    That sounds like progress to me. Why do banks need funding at all? Well-run banks, that is. In any case, anything that reduces the amount of debt and borrowing is a positive sign, and very, very good news. It seems to me that those who think that increasing debt is some sort of sign of prosperity need to study some economics, as well as some history, past and current. Hopefully, the now obsolete practice of governments constantly borrowing will soon come to an end. We might even be able to have a rational and stable banking system.

Comments are closed.