Five years after the financial crisis began, many banks throughout the
euro zone are still in a weakened state, cut off from money markets
because investors do not trust them, and effectively on life support
from the European Central Bank.
While the talk has been mostly about Spain and Cyprus, European leaders
meeting in Brussels on Thursday and Friday must confront broader
problems in the banking system if they want to stabilize the euro zone,
economists say.
What country could be next to face a banking crisis? It may not be one
of the usual suspects. If the key elements are banks with exposure to
declining economies, thin capital cushions and a government that would
be stretched to finance a bailout, even France could be vulnerable.
Three of the four largest French banks had capital shortfalls even by
the relatively lenient standards applied by European regulators, and the
fourth has suffered a 27 percent share decline so far this year because
of its exposure to Greece.
Germany, considered the strongest economy in the euro zone, is still
dealing with publicly owned landesbanks that made bad investments in
boom times. Even Deutsche Bank,
the country’s largest, faced a downgrade by Moody’s last week because
of what the ratings agency said was too much dependence on trading
revenue.
“The weakness is throughout the euro zone,” said Marie Diron, an
economist who advises the consulting firm Ernst & Young.
“Restructuring of the banking sector really hasn’t taken place to the
same extent as in the United States.”
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