More than $1 trillion of Bad Debt in German Banking System
A leaked report in the Sueddeutsche Zeitung today indicates that there is over $1 trillion of bad debts in the German banking system with the landesbanks looking like they may all be insolvent. Just as has been speculated in Spain, where the Spanish savings banks, which lend to residential construction, perhaps all being bailed out by the government, a similar disaster appears to be developing in Germany. The two largest commercial banks may also need some help. Commerzbank apparently has a large toxic asset portfolio. Deutsche Bank has very low levels of reserves relative to non-performing loans.
The government appears to be upset that the information was leaked to the market. Once again, we see that governments’ real motivations are not to clean up the system but to hide the extent of the problem. Cleaning up the system would be much more costly. However, cleaning up the banks and recapitalizing is what is needed to start growth again. European banks appear to be far more leveraged than their US counterparties and far more exposed to eastern Europe. The cover-up of true conditions at banks is what has made the banks reluctant to lend to each other.
Filed under: Macro Policy Tagged: | Financials
