This phenomenon has become exaggerated to the absurd as of this September. I was wondering what has changed in a month.
As much as I have asked the directors I work with, their answers did not quite convince me. It is clear that there is a fear of granting credits due to the fear that they will not be returned, if the companies or private clients cannot cope with the quotas for the crisis; but that is half logical.
A bank’s business is based on leaving money, among other services
It is as if a lawyer does not exercise for fear of not being paid. A bit absurd, right?
They must return the money lent to them abroad; around € 770, 500 million. And about € 534. 6 billion expire within the next year and a half.
As an example, let’s imagine that the lender is a company that is focused on leaving money (loans) in the money that it enters from the clients (checking accounts plus deposits, commissions, etc . ). In 2007, 1, 1000 of its clients entered, yet left 1, 200 within loans.
The extra 200 were borrowed from the foreign bank.
This year 2008 has to come back 220 to the foreign financial institution (capital borrowed plus interest) and enters less money within their accounts due to the effects of the particular crisis on their balance bedding (say 800). The Bank provides 800, of which 220 can be destined to return debt (capital and interest) to the international bank. He has 680 remaining to leave his customers. Less money to leave, higher demands to grant financial loans.
How do banking institutions get liquidity?
one – Leaving money together
Banks find it difficult getting money in the interbank market (just look at the Euribor, the price at which money is usually left between them), plus money is rarely remaining for more than a week.
2 . – Securitizing mortgages
They will made mortgage packages plus sold them to the market to obtain liquid money. This market will be closed due to the subprime problems.
3. : Going to the liquidity auctions from the ECB.
Exactly what no longer supplies.
4. – With the cash of their clients
Each time with more attractive down payment offers (above the Euribor, they lose money, in theory).
5. : Requesting loans from international banks
In fact it is not left as just before.
6. : Selling shares of others, their properties, etc .
Who imagined a couple of years ago that banks, rather than opening branches, sold all of them?
That will banks are running from liquidity
We observe, therefore , that banks are usually running out of liquidity, primarily in the medium and long-term; That is the fundamental reason for not really leaving loans. What do not need a hard.