Concerns over a possible bank run, with long lines outside banks of people who are eager to withdraw their savings, as happened after 1929, are rising.
These concerns may lead to a massive plan to avoid a large-scale collapse of the banking system. Central bankers, governments and financial authorities from both sides of the Atlantic Ocean have been discussing emergency plans for weeks behind closed doors, preparing for the worst. The Wall Street Journal in fact reports that despite the over 1,000 billion euros made available by the ECB, ''European banks fear'' their clients will run off. To avoid a mass panic, the European authorities are studying a ''pan-European plan to guarantee all deposits." A few weeks ago, ECB chairman Mario Draghi said he would like to see a resolution plan, a plan to manage and control bank bailouts on European scale. But the question is being discussed in the U.K. and U.S.
as well, where large financial firms like Jp Morgan are increasingly worried about their exposure to Europe. According to the Financial Times, the Bank of England, the Financial Service Authority (FSA) and the American Federal Deposit Insurance Corporation (FDIC) are studying a 'top-down bail-in' mechanism, in which authorities take control of a bank in difficulties, forcing investors to take their losses but rescuing the institution itself, avoiding a Lehman Brothers-style domino effect. The main risk in this issue is posed by Greece, which may say goodbye to the euro. If this happens, Citigroup analyst Stefan Nedialkov estimates that the banks of Ireland, Italy, Portugal and Spain could rapidly lose between 90 and 340 billion euros in deposits. It is no coincidence that the G8 leaders want to avoid this scenario. Meanwhile, only last week Greek citizens withdrew 700 million euros from Greece's banks in a slowly rising trend to take money abroad. And then there is the case of Spain: amid speculations, later denied, that account holders are withdrawing their deposits from Bankia, Madrid estimates that the bank needs another 7-7.5 billion euros despite its nationalisation.
According to the IMF, 30% of Spanish banks will need state aid if they want to pass the government-imposed stress test. The Institute of International Finance (IIF) has estimated that banks in Spain will require up to 260 billion dollars in 2012-2013 and public aid for 50-60 billion dollars. The CJAS, the country's savings banks, will need most money, the IIF adds, but the Spanish banking system is in a better position than the Irish banks, which have been hit by a property crisis. Clients in the U.K. are withdrawing funds from Santander (200 million pounds last Friday), downgraded by Moody's. Many Italian banks have been hit by a rate cut as well, causing Montepaschi and Banco Popolare to approach the 'junk' status. France faces its first test under its new president Francois Hollande with the possible nationalisation of mortgage institute Credit Immobilier de France. But Germany is facing similar problems: the country's seventh-largest property fund has gone into liquidation. The fund in question is Euroreal (Credit Suisse), which has to pay back 7.6 billion dollars. Jp Morgan has issued a global warning over America's exposition to Europe. The bank of Jamie Dimon, exposed to Europe for at least two billion dollars, is the largest buyer of subprime bonds in Europe, which have become a risky investment. Since 2009 it was among the main buyers of subprime packages issued by Royal Bank of Scotland, Lloyds, Santander and, in the Netherlands shortly after it entered a recession, ING and Aegon. After exiting the crisis of four years ago unharmed, today the stronghold of investment banking is facing the ghosts of the past.(ANSAmed).