Naive View of a Banking Crisis


Rising bad loans signal more pain for Spanish banks | Reuters.

Towards the beginning of the article, the author opines

Most banks in Spain will take the last hit from property-related writedowns in fourth-quarter results, putting the worst of the crisis behind them.

Banking crises are very resilient. In the case of Spain, the worst is by no means behind them. Unemployment is rising at a rapid clip, and property values continue to plummet likewise. As long as these two dynamics are present, non performing loans will continue to increase at a a virtually parabolic rate.

The United States experienced its own banking crisis in the wake of the subprime bubble. Bad loans did not stop rising until after property values bottomed out. If you want an idea of how far this thing can go,  check here:

A property bubble bursting can cause NPL’s to rise to 25-30%. This is in the ballpark for what the eventual tally will be for Spanish banks.


Reuters also published a more accurate assessment of the prospect of European banks:

Moody’s warns European banks need more cash | Reuters.


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s