Paul BASCHET

European banking system

In the last six months, the euro zone has faced its biggest economic crisis. One sparked by the Greek debt crisis which has migrated to the rest of the monetary union. But well before the sovereign debt crisis, Europe was facing a full-blown banking crisis that did not seem any closer to being resolved than when it began in late 2008. With investors and markets focused on European governments' debt problems, the banking issues have largely been ignored. However, the sovereign debt crisis and banking crisis have become intertwined and could feed off each other in the near future.

Origins

2009 is an important step for banks in the euro area, with 450 billion worth of euros ($ 541 billion) of loans due next European Central Bank (ECB). The loans were part of the proposal a year of liquidity from the ECB made in 2009, which was expected to help stabilize the banking system.

However, one year after the ECB provision was initially offered, banks in the euro area are still struggling, and now Europe's banks must collectively provide cash roughly equivalent to gross domestic product of Poland (gdp)

Concerns about the potentially adverse consequences of removing liquidity from ECB capture many banks and, by extension, European investors who were already scared by the sovereign debt crisis in the country club Med (Greece, Portugal, Spain and Italy ). These concerns are as much a testament to the severity of the banking crisis continues in the euro area over the lack of resolution that characterized the handling of the fundamental problems of Europe. The banking problems in Europe before the crisis continues and even exposure to sovereign debt of the euro area to the U.S. subprime mortgage mess. The European banking crisis has its roots in two fundamental factors: the adoption of euro in 1999 and the general global credit expansion which began in the early 2000s. The combination