- A Major Banking Collapse Looks Imminent
by Nick Giambruno, Senior Editor, http://www.internationalman.com/
This surprises almost everyone…
You don’t own the money in your bank account. Once you deposit money at the bank, it’s no longer your property. It’s the bank’s. What you own is a promise from the bank to repay you. It’s an unsecured liability. Technically, you’re a creditor of the bank. And that means a bank bail-in would probably burn you.
A bail-in is when a bank recapitalizes itself by tapping its creditors. That includes all of its average Joe depositors. Italians are about to find this out the hard way.
The Italian banking system is a mile-high house of cards.
It’s looking wobblier every day. The Italian economy is made up of many small and medium-sized businesses. Those businesses take out loans from Italian banks. But the country’s economy is in a deep and protracted depression. So, many of those loans have either gone bad or will go bad.
This has created a crisis in the Italian banking system. It’s taken years to build up, but the situation is finally coming to a head. The Italian banking system is insolvent. Shares of most Italian banks have plummeted more than 50% so far this year. Together, Italian banks hold $400 billion-plus worth of loans that are 90 days past due and unlikely to be repaid in full. That’s a staggering figure. These nonperforming loans (NPLs) account for more than 18% of all outstanding bank loans in Italy. They add up to over 20% of the Italian GDP.
Here is some sobering perspective: Only 5% of all outstanding loans in France are nonperforming. In the US, it’s 2%. In the UK, it’s a mere 1.5%. Italy’s NPLs are an enormous problem. Behind the scenes, European central bankers are preparing for a major crisis—all while promising the public that “everything is under control.” They know how bad the problem is. That’s why they urgently passed new bail-in rules earlier this year.
The Italian government is in an unenviable conundrum. It can stall and save the banks through a bail-in, or it can let the whole house of cards topple. Either choice is political suicide. The collapse of Italy’s banking system appears imminent.
There’s a strong chance it will happen in the coming weeks.