European Banking System: In Germany, Little Appetite to Change Troubled Banking System

One of the most battered banking systems in Europe has a history of mismanagement, corruption and politically connected lending, and it has cost taxpayers hundreds of billions of euros.

Is it Italy, Spain or perhaps Greece? No. That description is of Germany’s banking sector.

While the country’s economy is often held up as a model, German banks are among Europe’s most troubled.

They required a bailout bigger than the one American banks received, and many are still struggling to recover.

But there is remarkably little discssion about fundamentally changing the structure of the German banking system. On the contrary, Europe’s economic leaders criticize Germany for slowing progress toward unifying the Continent’s patchwork system of bank regulation, an effort seen as crucial to restoring faith in the euro zone and averting future globe-threatening crises. Ailing German banks are also a dead weight on the euro zone economy as it struggles to crawl out of recession. 

“Germany was actually hit very hard by the financial crisis,” said Jörg Rocholl, president of the European School of Management and Technology, a business school in Berlin. But the debate about the future of banking in Germany is “alarmingly nonintense,” Mr. Rocholl said.

Banks in Germany invested in seemingly every bad asset that came their way, including American subprime assets and Greek bonds. “There is no sense of pride that Germans were especially thorough or prudent,” said Sven Giegold, a German who is a member of the Economic and Monetary Affairs Committee in the European Parliament. 

EU-Digest

Ireland fines UBS for lack of controls - by Brooke Masters

UBS’s international life assurance arm has been hit with Ireland’s first ever fine for failing to comply with a 2010 law aimed at preventing financial companies from being used to launder money and finance terrorism.

The €65,000 penalty handed out to the Swiss bank’s unit is part of Ireland’s broader effort to strengthen oversight of the banking sector after the financial collapse that forced the country to seek a €67.5bn bailout from the EU and International Monetary Fund.

Irish regulators found that UBS failed to put in place the necessary controls after the law was passed or instruct its directors on the anti-money laundering rules.

The fine, while tiny by US and UK standards, is yet another strike at systems and controls at UBS, which settled with US tax authorities after a long wrangle, suffered a $2bn rogue trading loss last year and is being investigated, along with other banks, for possible manipulation of the London interbank lending rate, known as Libor.

Note EU-Digest: Isn't it time this ever increasing number of banks which are being caught for fraud are handed out some criminal charges by the justice system? 

Read More: Ireland fines UBS for lack of controls - FT.com

Poll: European Monarchies should not be funded by taxpayers

In a recent EU-Digest poll which ran through the month of May which asked, "Should European Royal Families Be Maintained By Taxpayers?" 86% polled said no; 5% said yes; and 9% said they did not know.

The new EU-Digest poll for June asks the following question: "Should Banks Which Fail Be Propped Up With Taxpayers Money?

Let your voice be heard.


EU-Digest

Spain can count on aid from abroad: Polish cenbanker

Spain could count on a firewall of international funding if its troubled banks need further recapitalization, but the depth of its problems pale next to those of Greece, Poland's central bank governor said on Monday.

Investors are growing increasingly concerned Spain could be forced to seek an international bailout the euro zone can barely afford even though Spain's prime minister has said there will not be any European rescue for Spanish banks.

Polish central bank chief Marek Belka, a former European director at the International Monetary Fund (IMF) who gave a speech in Peru on the difficulties facing the euro, said international funding would be available if Spain needs it.

Read More: Spain can count on aid from abroad: Polish cenbanker - chicagotribune.com

Spain's PM defends solvency of Spanish banks, downplays upward revision of 2011 budget deficit

Spain's prime minister has defended the solvency of Spanish banks and downplayed his French counterpart's suggestion that they could benefit from a recapitalization using European funds.

Speaking to journalists on his arrival in Chicago for Sunday's NATO summit, Mariano Rajoy said comments made by Francois Hollande were not based on accurate figures. Rajoy says "Hollande does not know the state of Spanish banks."

Spain on Friday revised its 2011 budgest deficit to 8.9 per cent. Rajoy said this shows the government's willingness to be transparent with public accounts.

Spain's deficit is higher than the euro zone's economic threshold of 3 per cent. The previous, Socialist government, has put the 2011 deficit at 6 per cent.

Read more: Spain's PM defends solvency of Spanish banks, downplays upward revision of 2011 budget deficit | CanadianBusiness.com

USA: Americans Are Losing Trust In All U.S. Institutions

The signs are everywhere: Americans have lost trust in our institutions.

The Chicago Booth/Kellogg School Financial Trust Index published yesterday shows that only 22% of Americans trust the nation’s financial system.

Seven in 10 Americans believe that the country is on the wrong track; eight in 10 are dissatisfied with the way the nation is being governed. Only 23 percent have confidence in banks, and just 19 percent have confidence in big business. Less than half the population expresses “a great deal” of confidence in the public-school system or organized religion.

“We have lost our gods,” says Laura Hansen, an assistant professor of sociology at Western New England University in Springfield, Mass. “We lost [faith] in the media: Remember Walter Cronkite?

We lost it in our culture: You can’t point to a movie star who might inspire us, because we know too much about them.  We lost it in politics, because we know too much about politicians’ lives. We’ have  lost it—that basic sense of trust and confidence—in everything.”

As trust declines, so does Americans’ willingness to invest their money in the financial system. Our data show that trust in the stock market affects people’s intention to buy stocks, even after accounting for expectations of future stock-market performance. Similarly, a person’s trust in banks predicts the likelihood that he will make a run on his bank in a moment of crisis: 25 percent of those who don’t trust banks withdrew their deposits and stored them as cash last fall, compared with only 3 percent of those who said they still trusted the banks. Thus, trust in financial institutions is a key factor for the smooth functioning of capital markets and, by extension, the economy. Changes in trust matter.


Read more: Americans Are Losing Trust In All U.S. Institutions :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

EU struggles to seek accord on bank capital

European Union finance ministers struggled yesterday to reach a deal on forcing banks to set aside more capital to cushion future losses, with Spain saying the bloc had to dispel doubts about the strength of its lenders.

The EU’s 27 members are divided over how much capital banks should hold in future to protect themselves against the kind of losses which have brought down dozens of lenders in Europe and the US, often requiring bailouts funded by taxpayers.

Spain, whose banks have suffered huge losses inflicted by a property crash that is continuing unabated, said new rules were vital for handling future turmoil.

“At this time of financial crisis, we need to clear up all doubts about the quality of European banks,” Economy Minister Luis de Guindos said. “We need to guarantee a level of quality capital that is enough to face future crises,” he told reporters as he arrived at the talks.


Note EU-Digest: The European Central Bank provides EU banks with 1% loans which they lend to out with a 6 percent interest rate or more to othe countries and institutions.. 

For more: Gulf Times – Qatar’s top-selling English daily newspaper - Finance & Business

Bloomberg: Crisis Spawns Drive to Fix Euro With More Rules, Ties - by James G. Neuger and Simon Kennedy

Bloomberg.com: Exclusive on euro

What doesn’t kill the euro region may make it stronger.

As the sharpest contraction since World War II batters the 16-nation economy, Europe’s leaders are belatedly -- and reluctantly -- starting to fix design flaws, including a patchwork of financial regulations and lack of fiscal coordination, that hamper the decade-old monetary union. “A crisis is a terrible thing to waste,” says Barry Eichengreen, a professor at the University of California at Berkeley and author of a 2006 book on Europe’s economic history. “Crisis can be a catalyst for reform, and in Europe’s case we see the possibility of that happening.”

Efforts to fortify the foundations of the single currency are gaining momentum. A panel of European Union advisers recommended on Feb. 25 the creation of new agencies with power to tie together national regulators of banks, insurers and securities firms. Multilateral institutions including the World Bank on Feb. 27 offered billions of euros of loans in an effort to keep collapsing economies in the east from dragging Europe into a worse recession.

Times Online: Eastern European banks given €24.5bn aid - by David Charter

For the complete report from the Times Online click on this link

Eastern European banks given €24.5bn aid - by David Charter

A €24.5 billion (£21.8 billion) bailout of Eastern European banks was announced yesterday as efforts were stepped up to prevent the economic downturn causing a damaging East-West split on the Continent. The funds will come from the European Bank of Reconstruction and Development (EBRD), the World Bank and the European Investment Bank (EIB). The EBRD, set up to help former Iron Curtain countries to make the transition from communist rule, will be providing up to €6 billion for the financial sector in 2009-10. The EIB will commit €11 billion and the World Bank €7.5 billion.

The move came as European leaders prepared for a summit tomorrow called by the Czech Republic, which holds the rotating presidency of the European Union.

New Statesman - UK - The mad world of shadow bankers - by Ian Macwhirter

For the complete report from the New Statesman click on this link

UK - The mad world of shadow bankers -by Ian Macwhirter

The madness of the shadow banking system became apparent over a year ago when Northern Rock was nationalised, but regulators ignored the implications. The Treasury minister Yvette Cooper discovered to her dismay that Northern Rock didn't own half of its own mortgages: £50bn had been hived off to a Jersey-based company, Granite, registered as a charity benefiting Down's syndrome children in the north-east of England. Needless to say, the charity didn't get any cash - this was a special-purpose vehicle that allowed the Rock to trade in complex securities without having to meet the stringent capitalisation requirements of a normal bank. But it wasn't just the Rock. Most banks and other financial institutions did exactly the same, setting up "orphan companies", often under charitable trusts, that did not appear on their published balance sheets. This is one reason why such apparently well-capitalized and solvent institutions as Royal Bank of Scotland collapsed so suddenly. Their true liabilities had been hidden for years in the shadow system while they made huge profits from lending.

How did they get away with it? If you or I set up fictitious offshore identities to evade tax and conceal high-risk financial activities, we would end up in jail. But the regulators turned a blind eye, partly because they didn't fully understand structured finance, and partly because the government believed that it must be a good thing, as it generated so much profit and tax revenue. This was the regime of "light-touch regulation" of the City that turned the British economy into a cross between a Liechtenstein tax haven and a giant hedge fund.

Economic Times: Europe to suspend banks mark-to-market accounting- "Legalizing Banking Fraud"

For the complete report from the The Economic Times click on this link

Europe to suspend banks mark-to-market accounting- "Legalizing Banking Fraud"

European leaders have agreed to seek measures to suspend so-called "mark-to-market" accountancy rules in order to stabilise bank balance sheets, a statement said on Sunday. According to an action plan released by the 15 leaders of the eurozone single-currency bloc, equities held by banks will no longer be recorded at their current values on the world's severely depressed markets. "Under the current exceptional circumstances, financial institutions should be allowed to value their assets consistently with risk of default assumptions rather than immediate market value which, in illiquid markets, may no longer be appropriate," the statement said.

The leaders hope that by suspending this requirement, banks balance sheets will look more healthy and the risks will be reduced that they be swept away by a run on the markets.

FT.com - France - Banque Populaire and Caisse d'Epargne in tie-up talks - by Scheherazade Daneshkhu

For the complete report from the FT.com click on this link

France - Banque Populaire and Caisse d'Epargne in tie-up talks - by Scheherazade Daneshkhu

Groupe Banque Populaire and Groupe Caisse d'Epargne, two of France's biggest savings banks, have entered into merger talks in an attempt to weather the financial market turmoil. If successful, the merger between the mutually owned banks would create France's second-biggest retail bank after Crédit Agricole, which took over Crédit Lyonnais in 2003. It would have a network of 8,200 branches and, according to the banks, €480bn ($656bn) of savings and deposits.

Market Watch - Italy - Unicredit CEO: Italian banks "absolutely solid"

For the complete report from MarketWatch click on this link

Unicredit CEO: Italian banks "absolutely solid"

UniCredit SpA (UCG.MI) Chief Executive Officer Alessandro Profumo said in an interview published Tuesday that Italy's banking sector, including the bank he leads, is "absolutely solid." "We've had some problems, but the bank has always been very solid and now it's even more solid," Profumo told Rome daily La Republica.

EUobserver: ECB liquidity injections not working - by Leigh Phillips

For the complete report from EUobserver click on this link

ECB liquidity injections not working - by Leigh Phillips

The billions of euros the European Central Bank has been injecting into money markets since the start of the crisis in an attempt to get banks to start loaning money to each other and other businesses is not working.Instead, banks are redepositing some of the monies back with the ECB itself - over €100 billion overnight as of Tuesday (30 September - the latest available figures) - as they are worried that the central bank is the last safe place left to stash their cash.

As of last Tuesday (23 September), banks had "parked" €1.4 billion with the ECB's "deposit facility." By Thursday, the figure had climbed to €4.2 billion and jumping to €28 billion the next day. On Monday, banks were now depositing €44 billion with the ECB and as of yesterday, the latest figures available, the cash placed with the bank for safekeeping had more than doubled to €102.8 billion.

Businessweek: Little Crisis for Europe's Banks - Carol Matlack

For the complete report from Businessweek click on this link

Little Crisis for Europe's Banks - by Carol Matlack

Suddenly, stodgy banks are looking smart. And with former Wall Street giants toppling almost daily, some European banks are starting to look especially wise. European banks are holding up pretty well amid the turmoil sweeping the industry. None of the Old World's biggest banks appears likely to fail or put itself on the block, analysts say. Indeed, the Europeans are more likely to be buying: London-based Barclays (BCS) on Sept. 17 inked a $1.75 billion cash deal to buy the investment banking and trading businesses of bankrupt Lehman Brothers.

EU urged to review its 'One-China' policy

EU Politics News - theParliament.com

"EU urged to review its 'One-China' policy

The EU has been urged to review is support for the so-called ‘One-China’ policy which it is claimed effectively excludes Taiwan from international organisations.

The call, by Portuguese MEP Paulo Casaca, comes at the start of the 63rd general assembly of the United Nations where Taiwan’s application for ‘meaningful participation’ in the UN’s specialised agencies will be considered."

Reuters: US Economy - As faith in bank bailouts dims, losses set to deepen - by Pedro Nicolaci da Costa

for the complete report from Reuters click on this link

As faith in bank bailouts dims- by Pedro Nicolaci da Costa

The nightmare scenario for U.S. economic authorities is here: confidence in their ability to rescue the country from a housing-led financial panic is now at its lowest level since the crisis began. This means losses for investors, already totaling nearly half a trillion dollars, could mount even further over the next few months, with implications for business investment and the overall health of the economy. "You see a massive potential for financial meltdown on a global scale," said T.J. Marta, fixed-income strategist at RBC Capital Markets.

Bloomberg reports: ``Hopes for a bottom'' this year in home construction ``are rapidly fading,'' said David Resler, chief economist at Nomura Securities International Inc. in New York. The housing recession ``has been spilling over to manufacturing for months,'' contributing to ``recessionary conditions,'' he said. Commodity on line reported: "A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality".

Peoples Defender: US Economic Meltdown - Credit card crises now looming in America: - by Danny Bubp Ohio State Representative

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US Economic Meltdown - Credit card crises now looming in America: - by Danny Bubp Ohio State Representative

"Credit card companies have dozens of reasons, I should call them excuses, for raising our interest rates. I have read that these large banks have formulas for their computers to automatically raise rates when they can determine that a family is trapped in a debt too large to handle. Some of these large banks are as bad as loan sharks. When the banks' computers detect that a consumer is near the maximum on his card and is only making the minimum payment, the rates are raised. Why would credit card companies push someone who is already in trouble into deeper trouble? Because they can. These large banks are now protecting themselves just like they did with the sub-prime mortgage fiasco. They are transferring their risk on bad credit card loans to insurance companies. We could very easily find ourselves in another national financial crisis. And this crisis would be handed to the taxpayers, just like the mortgage crisis was. However, the gigantic banks that control most of our banking systems are only interested in short-term profits and are working against the long-term health of the US economy."

Seattlepi.com: US elections - An ailing America awaits Bush's successor - by Robert L. Jamieson Jr.

For the complete report from seattlepi click on this link

An ailing America awaits Bush's successor - by Robert L. Jamieson Jr.

Whichever candidate eventually wins the White House faces a world of woe, courtesy of a Bush administration that can't exit stage right fast enough. Leftover trouble will come at the next president -- "at 100 miles per hour, like a cannonball to the chest," said Congressman Jim McDermott of Seattle, who made the rounds in town last week.On Jan. 20, 2009, the fresh quest begins -- a new president's push to cure America on its sickbed.

EU-Digest Special Report: Credit Card Industry and Member Banks Sticking It To The Consumer

Credit cards Industry sticking it to the customers

A special report on the credit card industry

EU-Digest Special Report: Credit Card Industry and Member Banks Sticking It To The Consumer

There are plastic time bombs sitting in your wallet - they are called credit cards. The "bargain" you bought at your favorite store with your credit card will increase in price by at least 28 percent, within a year, if you keep that purchase on your credit card by not paying off your credit card monthly.

The situation in the credit card industry is getting out of hand on both sides of the Atlantic. In Europe earlier this year the European Commission's antitrust regulator said in a draft summary it would possibly investigate banks and payment card providers for colluding on prices and using practices aimed at keeping competitors out of their markets. Also, according to the report, credit card fees and interest rates vary between countries, which indicate that there is limited cross-border competition.

In the US, this past Tuesday, the Merchants Payments Coalition, which groups about 30 associations, representing almost 2.7 million stores in America, applauded a congressional hearing on unfair credit card practices in the United States. The hearing, held by the US Senate Permanent Subcommittee on Investigations, is one of several meetings already held this year to investigate the allegedly unfair practices imposed on consumers and merchants by credit card companies and their member bank companies. "This hearing is another example of how serious the issue of credit card abusive practices is for everyone", said a Senator on the Subcommittee. "The credit card industry is profiting from outrageous fees". During the Tuesday Subcommittee meeting the discussion also focused on the so-called "interchange" fee, which represents a percentage of each transaction that American Express, Discover Visa, MasterCard and their member banks collect from retailers every single time a credit or debit card is used to pay for a purchase. The fee varies with the type of merchant, transaction, and card, but averages out to roughly 2% per transaction. This fee is the reason why some merchants require a minimum purchase of X amount before they will permit a customer to make their purchase using a credit or debit card. Unfortunately, the US Congress so far has only held discussions, but has done nothing to actually reduce or limit the exorbitant fees, sky-high penalties, and above normal interest rates being charged to cardholders. The need for action is becoming more and more pressing. Specially now the US Federal Reserve has cut benchmark interest rates. The credit card companies and their member bank companies have not followed suit after the interest rates were dropped and are still charging abnormally high interest rates and ridiculously bloated service fees.

In the US the five banks that issue most Visa and MasterCards include JPMorgan Chase, Bank of America, Citibank, Capital One, and HSBC. Surveys show all these banks have a poor reputation for making their Customers pay outrages fees for services and far higher than normal interest rates. The Household Bank MasterCard has a cash advance rate of 25.15 percent. Blue from American Express and Sun Trust’s Visa charge 23.34 percent. On top of that, there usually is a transaction fee of 3 percent or more. Someone using their Chase credit card to get a $1,500 cash advance will pay about $465 in interest and fees for this so-called "service" within the first year.

During the past months the Central Banks from all over the world have pumped billions of hard currency into the world-wide banking system to fight off liquidity problems, mainly the result of their own making and poor judgment. So far, the benefits of the Central Banks bailout have not trickled down to the US consumer, where household debt continues to rise, after it reached $14.2 trillion in the third quarter, or a record 138% of US household disposable income, up from 113% in 2002.

Therefore it seems that one of the areas which urgently needs to be looked at by governments world-wide is the unregulated credit card industry.

Figures today show that the average American owes about euro 6,872 ($9.900.00) in credit card debt, which amounts to a staggering total of euro 639bn ($920bn)for the whole US. In Europe, according to the BBC and the Credit Action Group the average European has about euro 2,185.00 ($ 3,147) of unsecured/credit card debt. One third of the total European credit card debt involves British credit card owners. Banks in Britain generally apply American credit card policies and standards.

Given these facts and the steady rise in the use of credit cards and consumer debt in the EU, the European Parliament would do EU consumers and the economy a service to also open an investigation into the practices of the credit card industry, but hopefully with better results than the US Senate Permanent Subcommittee on Investigations has achieved so far for American citizens.