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Can the banks survive coronavirus?

A couple of quotes:

“It’s likely that banks will need to be rescued,” said Nicola Borri, a finance professor at Luiss, a university in Rome. “The economy has basically been stopped. We are probably going to see massive defaults. Clearly, Italian banks will be badly hit.” New York Times.

"The biggest question, everyone agrees, is how long the downturn in demand will be. If it is brief, will people start spending again after a month or two, making up for lost spending by using what they have saved while in isolation? 'If not, we are talking about going back to the Middle Ages: no company will survive,' says Stefano Visalli, founder of Oxy Capital, an SME-focused private equity company in Milan." Euromoney.com.

If the Italian banks fall then the French will be in trouble and Deutsche Bank may need a bail out:


The big issue is whether or not the banks will fall.  They will be propped up by state funding during the crisis but what happens in 6 months time?  Will there be pent up demand or will the economy be so impoverished by months of inactivity and no or low pay that demand does not recover?

The underlying problem for banks is that their principle asset is government bonds.  In the case of Italy the banks are faced with the prospect of Italian bonds getting junk status as escalating yield rates reflect their unpopularity.
Panic sets in when bond rates exceed 10% and, from previous crises, this takes about 6 months after a crisis begins (ie: in August). In Germany the banks are paying to hold bonds as collateral (ie: Bunds have -ve interest).  This is bad news if you are a bank sitting on billions of Bunds and nowhere to loan your euros.
Yes, German Bunds still have negative interest.

UK 10 yr bonds are trading at near record low interest rates but Greek bonds almost reached 4% a couple of days ago.

If the banks fail again they will probably be nationalised in the EU and possibly elsewhere.  The international banks have been so incredibly, greedily incompetent in the twenty first century that they will receive little sympathy if they are nationalised.  However, nationalising all banks would be very bad news for you and me because loans will become political footballs.  That said, when the money used by banks becomes our money because it is all provided by the government is it right to allow bankers to be multimillionaires? Was that ever right?

23/3/2020




The biggest question, everyone agrees, is how long the downturn in demand will be. If it is brief, will people start spending again after a month or two, making up for lost spending by using what they have saved while in isolation? “If not, we are talking about going back to the Middle Ages: no company will survive,”

Full article: https://www.euromoney.com/article/b1kq42s3yscx9g/coronavirus-italys-banks-and-smes-face-crisis-if-shutdown-persists?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
The biggest question, everyone agrees, is how long the downturn in demand will be. If it is brief, will people start spending again after a month or two, making up for lost spending by using what they have saved while in isolation? “If not, we are talking about going back to the Middle Ages: no company will survive,”

Full article: https://www.euromoney.com/article/b1kq42s3yscx9g/coronavirus-italys-banks-and-smes-face-crisis-if-shutdown-persists?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.
The biggest question, everyone agrees, is how long the downturn in demand will be. If it is brief, will people start spending again after a month or two, making up for lost spending by using what they have saved while in isolation? “If not, we are talking about going back to the Middle Ages: no company will survive,”

Full article: https://www.euromoney.com/article/b1kq42s3yscx9g/coronavirus-italys-banks-and-smes-face-crisis-if-shutdown-persists?copyrightInfo=true
Visit http://www.euromoney.com/reprints for additional distribution rights. For more articles like this, follow us @euromoney on Twitter.

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