If a massive economic crisis hits Europe, don't be surprised if it starts with a French bank failing
Posted by
Brian (aka trav007)
Sep 13 '11, 11:03
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OPINION EUROPE SEPTEMBER 13, 2011
The Wall Street Journal
What's the Matter With the French Banks?
Whether the market's worst fears are realized or not, the financial system maintains too close a relationship to the state.
By NICOLAS LECAUSSIN
"We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."
He's not the only one worried. Société Générale has lost 22.5% of its value since the beginning of the summer. In early September, BNP released a statement�in English, which is highly unusual�explaining that it has abundant dollar liquidity and that BNP has nothing to worry about, unlike other banks. France's three biggest banks have been the subject of whisper campaigns about their solvency throughout the summer.
On the surface at least, the concerns are hardly groundless. BNP, Société Générale and Crédit Agricole together hold nearly $57 billion in Greek sovereign and private debt, versus $34 billion held by the largest German banks and $14 billion at British banks. And then there is Spain and Italy. French banks held more than �140 billion in total Spanish debt and almost �400 billion in Italian debt as of December, according to the latest figures from the Bank for International Settlements. If either of these governments were to default on their debts, their banking systems could collapse and take the French system along with them. BNP, Société Générale and Credit Agricole all say that their finances are in order and the market worries are unfounded.
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