EU banks are on the verge of liquidity crisis

And the capital needed will come from where? Apart from disappearing credible methods of raising capital, will it mean more Fed printing, therefore inflation in a stagnating economy? No wonder the Chinese think Europe as a whole needs a restructuring.



The Voice of Russia
By Oleg Obukhov
29 September 2013

Experts from PricewaterhouseCoopers (PwC), which is an international network of consulting companies, are denouncing another crisis. This time European banks will a face lack of liquidity that could happen next year. The prognosis was made on the basis of rate tightening to stocks of financial organization. It all comes down to an agreement, called Basel-3 that stipulates risk reduction in global bank system.

Basel-3 appeared after the economic crisis of 2008. It was approved by the countries of the G20 in two years. New standards began to appear this year. Now banks have to follow new rules: if they assume a risk, it should be justified, if there is a crisis, they have to be ahead of the game, if they write a report to moderators, it should be transparent and open. Mikhail Molodov, “Maxwell Capital” department of trade operations director, comments on the situation:

“Some time ago, the minimum amount of stocks could be 2%, but now, according to Basel-3, it has to be raised to 7%. That’s why banks will have to find liquidity. I think that some banks will have to carry out additional emission in order to find liquidity. They will also have to reduce the amount of different bonuses and dividends.” According to PricewaterhouseCoopers experts, an increase in the minimal amount of stocks has become one of the main problems for banks. It will be good, if a financial organization manages to find a sufficient amount of money, then it will not have any trouble. If it doesn’t succeed, there will be a liquidity crisis. And then the crisis affects banks, one by one. The same situation happened five years ago, Maxim Osadchiy, director of “BKF Bank” analytical department, says.

“A Liquidity crisis is an unpleasant phenomenon. We saw the consequences after the fall of American investment bank Lehman Brothers in USA in 2008. A Liquidity crisis develops into a credit crisis, into a bank crisis and then can generate an economic crisis.”

According to the analysts’ research, ten large European banks will require some 100 billion euro in order to fit the new standards of Basel-3. A lack of money can already be seen. According to the most conservative estimates of European financial organizations, the deficit makes some 200 billion euro. PricewaterhouseCoopers experts’ prognosis is more deterrent: in 2014, the financial gap might rise to some 300 billion euros.

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