FAST FIVE: Three Risks For European Banks
Three Risks For European Banks Tyler Durden Tue, 06/30/2020 – 05:00 Authored by Daniel Lacalle, The measures implemented by governments in the Eurozone have one common denominator: A massive increase in debt from governments and the private sector.
First, the rise in non-performing loans may elevate the total figure to 6% of total assets in the banking sector, or 1.2 trillion euros.
Banks may face a tsunami of problems as three factors collide: rise in non-performing loans, deflationary pressures from a prolonged crisis and, central bank keeping negative rates that destroy banking profitability.
Weakening the balance sheet of banks and hiding larger risk at lower rates in their balance sheets may be an extremely dangerous policy in the long run.
Taking measures to avoid creating a financial crisis from these extreme policies will be critical to avoid a larger problem in 2021-2022.