Bank runs in Greece (NBG and others)

Discussion in 'Stocks' started by m22au, May 7, 2010.

  1. m22au


    I'm a little surprised that (to the best of my knowledge) there have not been any bank runs that have resulted in the failure of Greek banks.

    Because now you have:

    * Greek govt debt trading at yields that suggest default

    * I would assume that Greek banks hold some of this debt and would be sitting on some losses as a result

    * The financial markets are strongly suggesting that the ECB / IMF bailout is not enough to fix Greece's problems

    * Therefore any implicit support of Greek banks by the Greek government could / should be considered unreliable.

    * Therefore any deposit insurance provided by the Greek government could / should be considered unreliable

    * Riots / fires etc

    * Strikes / contracting economy / unemployment >>> bad and doubtful debts

    * Stories about high net worth individuals withdrawing money from Greek banks and depositing it in banks in other countries

    Another way of putting this - if I was a resident of Greece, I would keep as little money as possible in Greek banks, and hold my Euros in a bank in an overseas country.

    Yet as an example, Yahoo Finance says NBG has a market cap of 8 billion. Yes it has fallen by a lot (60% to 70% off the 52 week high) but 8 billion seems like a big market cap for a bank in a country on the brink of insolvency.

    I'm not going to short NBG until it demonstrates significant underperformance versus other PIIGS banks, but I'm wondering why there haven't been crippling bank runs on Greek banks as yet?
  2. Cmon mate, do you really think the average Greek account holder is a global macro trader or astute reader of the financial tea leaves? Look at Northern Rock, it was obviously insolvent for months before the bank run happened. Most Russians didn't withdraw capital in early 1998, most Argentines didn't in 2000-2001 etc.

    The authorities have a vested interest in keeping things quiet, and the man in the street just doesn't know about these things.

    FWIW shorting got banned in Greece recently. But I agree that the Greek banks are in dire straits.
  3. There have been runs... Moreover, it's been acknowledged by the IMF/EU, given that bank recapitalization is part of the program (arnd EUR 10bn allocated to it).
  4. I live in Europe and premiums on physical gold are at 8% today!

    That's 100$ above spot!

    People and their dog are buying gold so it seems.
  5. m22au


    Yes you're right Cutten, and I like the Northern Rock analogy. I remember shorting Northern Rock around about the time there were queues lining up outside their branches, thinking it was such an easy trade to short and hold.

    I agree regarding the short ban in Greece but NBG is easily shortable on the NYSE.
  6. m22au


    Thanks Martinghoul. I agree that there has been a gradual run / reduction of deposits at Greek banks, however obviously not enough as yet to result in a bank run that results in bank insolvency.

    Thank you for the information about the 10 billion EUR bank recapitalisation; I was not aware of this specific detail.
  7. m22au


  8. The people of the EU countries where dropping the Euro is possible definitely know whats going on ... good article on zombie banks:

    I don't see how this ends well for the Euro... no matter how much kicking the can they play eventually they are going to kick the can and find out it has concrete in it.

    Cutter it's alot different now for people within the EU to transfer monies around then back in the day for Russian/Argentina...
  9. m22au


    Euro vs. Invasion of the Zombie Banks

    IS a euro held in an Irish bank in Dublin, or in a Portuguese bank in Lisbon, as sound and secure as a euro in a German bank in Berlin? That apparently simple question holds the key to understanding why the euro zone may splinter and bring a new financial crisis.

    In Ireland, there has been a “silent bank run” on financial institutions for much of the last year. In February, for instance, Irish private sector deposits dropped at an annual rate of 9.8 percent. That’s largely because some depositors doubt the commitment of the Irish government to the euro. They fear that they will wake up one morning to frozen bank accounts, followed by the conversion of their euro deposits into a lesser-valued new Irish currency. Pre-emptively, the depositors send their money outside Ireland, where it still represents safe euros or perhaps sterling, accessible by bank transfers and A.T.M. cards.

    This flight of capital reflects a centuries-old economic principle known as Gresham’s Law, sometimes expressed casually as “bad money drives out good money.” In this context, if two assets — euros inside and outside Ireland — are not equal in value in the eyes of the marketplace, sooner or later the legally fixed price parity will fall apart.

    If enough depositors fear frozen accounts, the banks will be emptied out, and they also will require additional government bailouts, on top of the bailouts for the bad real estate loans. The banks come to resemble empty shells, conduits for public aid but shrinking and unprofitable as businesses — and, to a large extent, that is already the case in Ireland. Portugal is moving in this same direction, toward being a land inhabited by zombie banks.

    It’s the zombie banks that doom the current European bailout plans. On any single day, or even for a year or two, an economy can survive with zombie banks, but over time functional domestic banks are needed to allocate credit.

    As it stands, European Union emergency facilities are marking time by lending more money to the fiscally troubled nations in the currency union. But these loans do not reverse the logic of Gresham’s Law. For instance on its longer-term notes, Portugal is already paying yields in the range of 8 to 10 percent, and yet the Portuguese economy is shrinking. The Portuguese are digging deeper into debt, and confidence in the banking system and the fortitude of the Portuguese government is dwindling.

    At this late point there’s probably no way to escape the mess by cutting government spending in the troubled countries. This year Ireland has a budget deficit of more than 30 percent of G.D.P., whereas in Portugal it is 8.6 percent. Even the best economic reforms can take many years to pay off with concrete results, and with zombie banks a turnaround is even harder and perhaps impossible. Most important, immense government spending cuts are often unpopular and so investors wonder whether an ailing country’s political system will see it through. The confidence problem remains.

    A second option is a giant write-down of current debts, combined with national bailouts to the creditor banks. For instance, taking this approach, the Merkel government in Germany might acknowledge the status quo isn’t working and speedily recapitalize the German banking system, while letting Ireland, Portugal and others off the hook for some of the money. It’s easy to see why this policy isn’t popular in Germany, and indeed, for years German politicians promised to their voters that such an outcome would never happen.

    Another dramatic way out is for Ireland, Portugal or some other country to break from the euro and create a new and lesser-valued domestic currency, while also defaulting on some debts. Any such breakaway country would incur the wrath of the European Union and also might have trouble borrowing on international capital markets. There will be no easy exit path from the euro. Still, taking this approach, a resolution of some kind would be in place, no subsequent devaluation of bank deposits would be expected and the new lower-valued currency would improve growth. Also, the troubled countries already cannot borrow at workable interest rates.

    There would be an associated problem, however: if any one euro zone country were to start exiting the euro, there would be bank runs on the other fiscally ailing countries. The richer European Union nations know this, and so they are toiling to keep everyone on board. But that conciliatory approach creates a new set of problems because any nation with an exit strategy suddenly has enormous leverage. Ireland or Portugal need only imply that without more aid it will be forced to leave the euro zone and bring down the proverbial house of cards. In both countries, aid agreements already are seen as a “work in progress,” and it’s not clear that the subsequent renegotiations have any end in sight, because an ailing country can always ask for a better deal the following year.

    ALL of the ways forward look ugly but, sooner or later, some variation of at least one of them is likely. Unfortunately, they all share the property of lowering European bank values, whipsawing currencies, hurting business confidence and possibly ending the European Union as an effective institution for collective decisions. That’s all because the euro, in retrospect, appears to have been a misguided attempt to equalize the values for some very unequal assets, namely the bank deposits of strong countries and those of weak countries.

    To track the risk of a new financial crisis, focus on whether the troubled euro zone economies are seeing bank runs and capital flight. Then comes a fundamental question about human nature, namely: Why do we so often postpone admitting that short-run patches simply aren’t going to work?  
  10. This article is biased and most probably paid by an "interested party". Some assumptions being made by the author - a professor by the way - are ridiculous.
    #10     Jun 2, 2011