Many German banks have not followed through on an agreement made by the governments of EU countries to publish full individual details by bank of the sovereign debt holdings of the banks, as part of the European bank stress tests that were released Friday, according to an interview with a top regulator published by FT.
“We agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks,” Arnoud Vossen, secretary-general of the Committee of European anking Supervisors (CEBS), the pan-European bank regulator, told FT.
On Friday, CEBS published the results of the stress tests, showing that only seven of the 91 EU banks tested failed to maintain adequate capital. They will have to raise additional capital.
The relatively few banks that failed the test, and the small amount of the capital shortfall, were well below market expectations, leading many analysts to criticize the test as insufficiently stringent.
Six of the 14 German banks tested — Deutsche Bank, Postbank, Hypo Real Estate, mutual groups DZ and WGZ, and Landesbank Berlin did not publish detailed accounts of their sovereign debt holdings, although Postbank released some information Sunday. All but one other European bank tested — Greece’s ATEbank, which failed the test — disclosed its sovereign debt holdings.
The failure to disclose suggests that the German banks have something to hide and risks further undermining the credibility of the whole stress test exercise.
German officials claim local law prohibited them from forcing the banks to publish such details.
Out here in upper middle class southern California many many many property listings are REO by German banks. We're talking about millions of dollars of NPAs that will likely take a 20-30% haircut even at the listing price. These assets probably weren't even considered for the stress test.
ReplyDeleteThe Irish Times notes that six of the 14 German banks tested – Deutsche Bank, Postbank, Hypo Real Estate, mutual groups DZ and WGZ, and Landesbank Berlin – did not publish the expected detailed breakdown of sovereign debt holdings, fuelling suspicion they had something to hide.
ReplyDeleteArnoud Vossen, Secretary-General of the CEBS, said it had agreed with all supervisory authorities and with the banks in the exercise that there would be a bank-by-bank disclosure of sovereign risks but officials from the German regulatory authorities – Bafin and the Bundesbank – said local law meant they could not force banks to publish such details.
The Landesbanks are a group of state-owned banks unique to Germany. They are regionally organised and their business is predominantly wholesale banking. They are also the head banking institution of the local and regional bases.
What they are hiding is the great size and plummeting fall of the shadow banking system, that is, the once lucrative seigniorage money creation system, that sprung up from financial deregulation that accompanied the repeal of the Glass Steagall Act, and operated in parallel with the traditional central bank sovereign debt seigniorage system.
The debt deflation of the shadow liabilities, that is those assets kept off balance sheet in SIVs, creates systemic risk as they impair traditional current account deficit funding. The plunge in shadow liabilities that has recently accelerated, will likely be the major contributing factor in a bond market collapse led by US Treasury bonds failing at auction as Nassim Taleb relates, ”We Are Going To Have, At Some Point, A Failed Auction”.
It is the credit deflation of the shadow liability system, identified in “Shadow Banking,” a staff report authored by Zoltan Pozsar, Tobias Adrian, Adam Ashcraft and Hayley Boesky, that could easily make the day of the failed auction come very soon, and the economic dislocation be more severe.
Suggested Reading
Tyler Durden, ZeroHedge article ..... Will The Record Plunge In Shadow Liabilities Impair Current Account “Shadow” Deficit Funding And Guarantee A Double Dip? ..... and
Annaly Salvos, SeekingAlpha article ..... NY Fed’s Paper On The Shadow Banking System Of Vast Importance ..... and
Possner Pinch Minyanville article ..... Liquidity in Economy Never Higher, Yet Banks Growing More Illiquid ..... and
Andrian Ash, Daily Reckoning article ..... Credit Deflation Lands In Britain .....