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Eurozone Bank Deposits Are Fleeing for Germany

by Jon Hill
October 13, 2011

PIGS vs. German Bank Deposits

The eurozone leadership is finally coming around to accepting that a major continent-wide bank recapitalization program is necessary.  Germany wants each country to take care of its own banks.  This approach could buy time, but it won’t work for long.  National bank backstops are untenable in a common currency area, as each sovereign has its own credit risk profile.  Depositors will simply flee toward the better backstops.  This can already be seen in the correlation between bank deposits in Germany and the PIGS (Portugal, Ireland, Greece, and Spain).  Before the financial crisis, those deposits were tightly correlated, as shown in the graphic above, but over the past two years the correlation has flipped – deposits are fleeing the PIGS and flying into Germany.  A stable eurozone banking system will require a unified regulatory, resolution, and rescue regime.

Steil: Europe’s Failings Illuminate Marshall Plan
Analysis Brief: Waiting on the Eurozone
Video: World Economic Update
Analysis Brief: Managing a Greek Default

Post a Comment 4 Comments

  • Posted by Dr. S A Visotsky

    I would like to see the datasets upon which statistical inference is based. There has been no evidence of Germany being a safe haven, as it were, for any deposits of any kind. Actually, to the contrary, Germany is widely being seen as the trigger to the contagion, as they continue to act with impunity, regards recapitalization and increasing the EFSF to a minimum of 2-5 Trillion Euros.

    With it’s largest and most stable bank, Deutsche Bank literally teetering on the edge of insolvency, we hardly believe Germany to be considered anything but extremely volatile, and worthy of a rating of no better that “BBB”.

    With EUROSTAT having them listed as leading the EU in 2011 Quarterly Government Debt at 2.088 Trillion Euros, and the story breaking 2 weeks ago about an additional 5 Trillion in “hidden Government Debt” that gives Germany a Debt to GDP of 268%, far above their Maastricht Treaty limit of 60%. With Deutsche Bank’s leverage currently at 49:1, it will take less than a 3% drop in the asset values on their books to wipe them out in an electronic sunami bankruptcy that will take no more than 30 minutes. We have data supporting all of this,and it is entirely fact based, again one must exercise caution in circulating inference as fact, that is exactly how flash crashes are instigated.

  • Posted by William Thayer

    http://www.youtube.com/watch?v=7plhUhjMVkA

    Why are people taking their money out of PIGs and putting it elsewhere? Pretty simple. European Economic Leadership is so poor that the Greek Rescue has ended up costing more than the original Greek Debt. See the above 3 minute video. Would you trust your money to them?????

  • Posted by Peter L. Griffiths

    The best reform of Europe’s bank indebtedness in international trade would be to encourage international trade to be financed by banks in the importing country not in the exporting country. In this way international indebtedness should be considerably reduced.

  • Posted by iakovos

    Introduction to Bank Recapitalization

    http://iakal.wordpress.com/2014/05/12/bank-recapitalization/

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