A First In History: The Coming Simultaneous European Banking Collapse

Tuesday, June 7, 2011
By Paul Martin

by Toni Straka

Watching international financial policy persisting on a concept to fight debt with more debt in an environment where official GDP growth rates only remain positive because of ridiculously low deflators, while interest rates apart from those central bank help for banks via laughingly low interest rates begin to surge everywhere else, this observer begins to wonder if one can expect anything else than a fast-rolling, simultaneous European banking collapse.

Engulfed in more exponentially rising debt on public and private levels than ever before there simply cannot be another end of the longest growth cycle in history than a simultaneous collapse of international banking when lending freezes up due to fears about the real creditworthiness of the respective counter party.

Globalization will have made it possible.

Bank Reserve Requirements: EU 2% – China 21%

The rise of supra-regional financial institutions that have evolved from two decades of radical deregulation of financial markets and are now too big to fail overshadows all major industrial nations as it has given birth to unprecedented bulks risks never seen before. The situation gets aggravated by the fact that banks have never held more derivatives than nowadays.

At a notional volume of $580 trillion as of 2010 derivatives now exceed global GDP of roughly $50 trillion by a factor of 12. It strongly appears this world is overleveraged as derivatives volumes have remained at this level for the last 3 years.

Minimum reserve requirements of a paltry 2% in the Eurozone mean that European banks are geared 1:50 (and possibly higher through the use of off balance sheet vehicles). An adverse 2% move of markets can wipe out any bank overnight.

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