European Bank Run Watch: Swiss Edition

Reggie Middleton's picture

On July 23, 2011 I penned The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs! which
detailed for my readers and subscribers the mechanics of the modern day
bank run, particular as I see (saw) it occurring in Europe.

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Those that follow me know that I have been warning on Europe and its banking system years before the sell side and mainstream financial media (reference the Pan-European Sovereign Debt Crisis series).

 A reader has convinced me to consult with him on a specific
situation, regarding overseas monies and the (lack of) safety of those funds, which prompted me to dig up the Sovereign Contagion Model that
we developed n 2010. In a nutshell, the Swiss banking industry was
built upon impenetrable bank privacy for high net worth clients. Once
the US decided it needed to boost its tax revenues during hard times, it
literally collapse the Swiss hegemony in secret banking and left that
banking industry to compete in actual banking versus asset concealment.
This left Swiss banks naked, for they don't appear to me to truly be
able to compete aggressively and successfully in other areas. 

Add to this mix potential contagion issues for the Swiss banking
industry due to the fact that Switzerland has a veritable cornucopia of
exposure all over the soon (if not already) serial recession ridden
world, and well...

The first chart is raw contagion exposure as a % of GDP. The 2nd chart is the same exposure ran through our “reality” model. Food for thought.

The BoomBustBlog Sovereign Contagion Model

Nearly every MSM analysts roundup attempts to speculate on who may be
next in the contagion. We believe we can provide the road map, and to
date we have been quite accurate. Most analysis looks at gross claims
between countries, which of course can be very illuminating, but also
tends to leave out many salient points and important risks/exposures.

Description: foreign claims of PIIGSDescription: foreign claims of PIIGSforeign claims of PIIGSforeign claims of PIIGS

In order to derive more meaningful conclusions about the risk
emanating from the cross border exposures, it is essential to closely
scrutinize the geographical break down of the total exposure as well as
the level of risk surrounding each component. We have therefore
developed a Sovereign Contagion model which aims to quantify the amount
of risk weighted foreign claims and contingent exposure for major
developed countries including major European countries, the US, Japan
and Asia major.

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I.          Summary of the methodology

·         We have followed a bottom-up approach wherein we have first
identified the countries/regions with high financial risk either owing
to rising sovereign risk (ballooning government debt
and fiscal deficit) or structural issues including remnants from the
asset bubble collapse, declining GDP, rising unemployment, current
account deficits, etc. For the purpose of our analysis, we have selected
PIIGS, CEE, Middle East (UAE and Kuwait), China and closely related
countries (Korea and Malaysia), the US and UK as the trigger points of
the financial risk dissemination across the analysed developed

·         In order to quantify the financial risk emanating in the
selected regions (trigger points), we looked into the probability of the
risk event happening due to three factors - a) government default b)
private sector default c) social unrest. The probabilities for each
factor were arrived on the basis of a number of variables determining
the relative weakness of the country. The aggregate risk event
probability for each country (trigger point) is the average of the risk
event probability due to the three factors.

·         Foreign claims of the developed countries against the
trigger point countries were taken as the relevant exposure. The
exposures of each developed country were expressed as % of its
respective GDP in order to build a relative scale for inter-country

·         The risk event probability of the trigger point countries
was multiplied by the respective exposure of the developed countries to
arrive at the total risk weighted exposure of each developed country.

·         Description: File Icon Sovereign Contagion Model - Retail - contains introduction, methodology summary, and findings

·         Description: File Icon Sovereign Contagion Model - Pro & Institutional -
contains all of the above as well as a very detailed methodology map
that explains what went into the model across dozens of countries.

The bank run in other European nations:


Related Pan-European Sovereign Risk Non-bank Subscription Research Archives

·         Ireland public finances projections_040710

·         Spain public finances projections_033010

·         UK Public Finances March 2010

·         Italy public finances projection

·         Greece Public Finances Projections

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