On Your Mark, Get Set, (Bank) Run! The Dominos of Serial Lehman 2.0 (x 4) In The EU Are Falling Into Place At A Quickening Pace

Reggie Middleton's picture

Here are a few updates supporting my thesis of the potential of a serial bank run (another one, that is) in Europe and the Eurozone. As was the case with Lehman Brothers and Bear Stearn (two of the biggest bank collapses that I have called during this "ongoing crisis), counterparties and funding sources get gun shy in the face of overvalued collateral and signs of insolvency - as well they should. Remember, we have identified banks that are at risk of Lehman 2.0, and for the exact same reasons that Lehman was at risk of such. Reference The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!, which I consider to be a must read!

Focusing on the most pertinent and contagious of the issues at hand leads us back to the initial premise of a European bank run. I laid the foundation for said topic discussion last Thursday in "The Fuel Behind Institutional “Runs on the Bank" Burns Through Europe, Lehman-Style" and the fear du jour is a European version of the Lehman Brothers or Bear Stearns style bank run. The aforelinked at explanatory piece is a must read precursor to this illustration of what can only be described as the anatomy of a European bank run - before the fact. Remember how the pieces of the puzzle were perfectly laid together for a Bear Stearns collapse in January of 2008, two months before the bank's actual collapse? Reference "Is this the Breaking of the Bear?" in which Bear Stearns collapse was illustrated in explicit, graphic detail. Lehman Brothers wasn't impossible to see either (Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008).


As excerpted from Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such:

The biggest European banks receive an average of US$64bn funding through the U.S. money market, money market that is quite gun shy of bank collapse, and for good reason. Signs of excess stress perceived in the US combined with the conservative nature of US money market funds (post-Lehman debacle) may very well lead to a US led run on these banks.

A trader that follows my work through the social media circles reports the pulling of even more liquidity from the eurozone area. This is a note that I received from him...

"US Money Market funds are aggressively w/ding from EZ bank comm paper and there is a HUGE shortage for dollars unfolding as we speak. Congress has warned the Fed not to go down the same path as 2008 (swap lines etc) so this will get ugly. As a trader, I'm not complaining, because volatility is my friend, but this is 1000x times worse than LEH/2008 (which at the time I was genuinely worried that the system might not make it). See, what made the depression so bad wasn't the stock market crash (bubblicious) but the sovereign defaults. Look at total bonds on NYSE listed at par from '25-'35, now imagine that on a world-wide scale. There are much larger dark pools of capital now than there were in the 20s and 30s and these players are trading CDS contracts on countries like a E-minis trader scalps the ES for 5-10 handles a day. Note: I almost have to get creative with my responses to your writings because you go so in depth and cover every dimension of the issue!"

Again, as excerpted from Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such:

If the panic doesn’t stem from the US, it could come (or arguably is coming), from the other side of the pond. The Telegraph reports: UK banks abandon eurozone over Greek default fears 

UK banks have pulled billions of pounds of funding from the euro zone as fears grow about the impact of a “Lehman-style” event connected to a Greek default. 

 Senior sources have revealed that leading banks, including Barclays and Standard Chartered, have radically reduced the amount of unsecured lending they are prepared to make available to euro zone banks, raising the prospect of a new credit crunch for the European banking system.

Standard Chartered is understood to have withdrawn tens of billions of pounds from the euro zone inter-bank lending market in recent months and cut its overall exposure by two-thirds in the past few weeks as it has become increasingly worried about the finances of other European banks.

Barclays has also cut its exposure in recent months as senior managers have become increasingly concerned about developments among banks with large exposures to the troubled European countries Greece, Ireland, Spain, Italy and Portugal.

... One source said it was “inevitable” that British banks would look to minimise their potential losses in the event the euro zone crisis were to get worse. “Everyone wants to ensure that they are not badly affected by the crisis,” said one bank executive.

Moves by stronger banks to cut back their lending to weaker banks is reminiscent of the build-up to the financial crisis in 2008, when the refusal of banks to lend to one another led to a seizing-up of the markets that eventually led to the collapse of several major banks and taxpayer bail-outs of many more.

Make no mistake - modern day bank runs are now caused by institutions!

 I have forensically stepped through the makings of a modern day global bank run in a series of informative articles - namely:

  1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
  2. What Happens When That Juggler Gets Clumsy?
  3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
  4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
  5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
  6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
  7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
  8. Eighteen Percent of the EU is Literally Junk, Carried As Risk Free Assets at Par Using 30x+ Leverage: Bank Collapse is Inevitable!!! 
  9. Observations Of French Markets From A Trader's Perspective

In said articles, I made clear that continual back stopping of insolvent banks makes analyzing individual banks almost a moot exercise since the banks problems will invariably be hoisted upon the tax paying populace of the sovereign state that it is domiciled in, and in the case of the EU - the taxpayers of a collective of sovereign states. Thus, one should look at not only the solvency of the banking institutions (with full market to market on assets, reference subscription document The Inevitability of Another Bank Crisis), but the solvency of the domicile sovereign state as well and any possible contagion effects, post bank bailouts -reference subscription documents:

Greece, Portugal and Ireland are matters of potential contagion, but can potentially be funded by the EU for a few years. Italy and Spain simply can't be funded! Professional level subscribers can reference the debt default/restructuring worksheets online:

Again, I repeat, "Italy and Spain simply can't be funded!" BoomBustBloggers know that Italy is focal point that can quickly and quite destructively spread contagion to France, and via fiscal proximity, Germany. Reference Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such:


CNBC reports: Italian Banks Slump After Bond Purchase Report

Italian bank shares were sharply lower in Wednesday morning trade after Reuters reported German Finance Minister Wolfgang Schaeuble said the euro zone's rescue fund should only purchase bonds on the secondary market in exceptional circumstances. Euro zone leaders agreed on a second bailout package for Greece last Thursday and said the European Financial Stability Facility (EFSF) bailout mechanism could buy bonds on the secondary market if the European Central bank recommended it do so.

"Even in the future, such purchases should only take place under very strict conditions when the European Central Bank deems there are exceptional circumstances on the financial markets and dangers for financial stability," Reuters quoted Schaueble as saying in a letter it obtained on Wednesday dated July 26. At 9:15 London time, shares in Intesa Sanpaolo were down 6 percent, while shares in Ubi Banca and Unicredit were trading just over 5 percent lower. Banco Popolare shares were off 5 percent.

This comes a week after releasing the very informative subscritpion document File Icon Italy Exposure Producing Bank Risk and a series of blog posts leading astute followers to the inevitable conclusion...

of The Inevitability of Another Bank Crisis. And like clockwork, the FT reports DB would have sold its entire 8bn holdings of Italian govt debt:

Deutsche Bank hedges Italian risk

Deutsche Bank cut its net exposure to Italian government debt by 88 per cent in the first six months of the year in a dramatic sign of international investors backing away from the eurozone’s third-largest economy.

Germany’s biggest lender disclosed with its second-quarter results that it had cut its net Italian sovereign exposure from €8bn at the end of 2010 to €997m by the start of July. Its overall exposure to what it called the “PIIGS” – Portugal, Ireland, Italy, Greece and Spain – fell 70 per cent to €3.7bn over the same period.

... Stefan Krause, Deutsche’s chief financial officer, linked the dramatic reduction in Italy to the first-time consolidation in December of Postbank, a German retail bank that had large Italian holdings. He added that Deutsche had bought credit default swaps – a form of insurance for investors – to hedge its Italian exposure in its trading book.

We went through this scenario for subscribers in detail, last year. Reference

... BNP Paribas, which has a large retail presence in Italy, expects to provide updated information on its sovereign exposures in next month’s results. But it does not anticipate them being dramatically different to the figures in the European stress tests, which revealed it increased its Italian holdings slightly last year.

Subscribers, see File Icon Italy Exposure Producing Bank Risk

UK banks are equally not expected to reveal such dramatic falls as most have already moved to reduce risk. Royal Bank of Scotland and HSBC have relatively small net positions, with less than €1bn of exposure to the country’s debt in their banking books. The comparable figure for Barclays is €2bn, according to data that accompanied the recent European stress tests.

...Deutsche’s disclosure came as it reported disappointing results, weighed down by difficult trading conditions in its investment bank.

We saw this one coming and BoomBustBloggers benefitted. Reference More On Trading with BoomBustBlog Research and the results after the face, BoomBustBlog Traders Armed With BoomBustBlog Research Caught ~10% Deutsche Bank Fall. All in all, quite prescient!



According to data from Europe’s stress tests, Deutsche Bank had reduced its Italian government bond holdings by a third over the course of 2010 to about €5.3bn. The only bank that had reduced their holdings by more was Spain’s Santander, which cut them by 40 per cent to €261m.

As clearly articulated over a year and a half ago in Overbanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe, the banking system is bigger than Europe itself and cannot be bailed out by the entities in which they are domiciled...

Sovereign Risk Alpha: The Banks Are Bigger Than Many of the Sovereigns


This is just a sampling of individual banks whose assets dwarf the GDP of the nations in which they're domiciled. To make matters even worse, leverage is rampant in Europe, even after the debacle which we are trying to get through has shown the risks of such an approach. A sudden deleveraging can wreak havoc upon these economies. Keep in mind that on an aggregate basis, these banks are even more of a force to be reckoned with.

The discussion of a European bank meltdown

The next major article on this topic will discuss the issue that no one in Europe is broaching. With all of the stress in the banking system and so much CRE debt rolling over in the next 2 years, who will make these loans against drastically depreciated (from bubble highs) real estate approaching a bearish environment for CRE. More importantly, the unwillingness (or inability) of banks to lend freely against depreciating assets causes them to depreciate more - and faster, thereby exacerbating the problem since the banks have mucho CRE related products on the balance sheet. I will present my solution to this dilemma in detail, soon.

Institutional subscribers should feel free to reach out to me via Google Plus for video chat and discussion or via email. If you need an invitation to Google+ and are a subscriber, simply drop me a mail and I will give you one. I am always open to speaking engagements. Feel free to follow me on:

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Theta_Burn's picture

I'd love to trade this, problem is the obvious low hanging fruit will be the set-up for slaughter.


LMAO's picture

Reg, I saw Nordea bank AB popping up in your charts at about 170% assets to sovereign nations GDP and an adjusted leverage "guesstimate" at about 20%. Are these numbers related to Denmark, Sweden, Finland, Norway ...?

Which sovereign are we talking about here?

I'm hoping you could be so kind as to clarify this

Thanks in advance.



DosZap's picture


geno, I agree.

Seems like we should have a dedicated page here, with info and contacts (reliable) for places that are desirable and prices are resonable,that are not 3rd world crap holes.

HSBC just announced multiple billions in profits, and are laying off 30,000 workers world wide.Selling 195 US locations, closing I think 13(lucky for those employees it wasn't the toher way around,for the time being).

Tense INDIAN's picture

i think they already have the computers to work for them......party is really over ....the music has stopped.. 

geno-econ's picture

Where do we run to ? Iam a senior citizen who has already taken an income decline hit due to zero interest rates. So where do I hobble to while bankers are dancing in the streets of fiat profits ?

lynnybee's picture

i'm "old" too .    Z.I.R.P. is meant to "depopulate" us ..... THEY WANT US GONE !   OBAMACARE, end-of-life death panels, Z.I.R.P., governments have long-term plans that they do not inform the people about !     geno-econ, get this thru your brain, the government wants us gone, they loved us when we were young, raising families, spending lots of money on consumer goods, paying lots of property taxes.   now that our usefullness is gone , they want us gone, too !     Besides, the older generation has too much knowledge about the way our parents & grandparents lived, basic savings accounts that earned us interest, paid off homes in 15 years, no credit cards, no debit cards .     THEY WANT US GONE !   spread the word ......... teach your children & grandchildren that these are not normal times; debit cards & credit cards are not money. 

irishlink's picture

Maybe we are feeling tremors in Turkey at the moment! The black swan will fly in from the east!

Robslob's picture

Hey Reggie...in addition to providing these brilliant exerpts how about what to do if there is another bank run (I must have missed the one in 2008; bank run).

It seems gold & silver are obvious, finding a stable local bank in which to park cash but really...what else is your average Joe supposed to do if he is not moving from the U.S. and does not have his own private island fully stocked???



Version 7's picture

Gold and silver are not going to protect you from a bank run (unless the entire banking system collapses). They just protect you from currency devaluation. Have a few cash on hand.

Panafrican Funktron Robot's picture

I disagree, many businesses already accept gold eagles at spot as compensation.  In the event of a bank run, I think the number of businesses accepting anything of stable value would skyrocket.  Gold is, has been, and probably always will be a stable store of value.  That's why so many here have it, in physical.

TSA Thug's picture

Glad to see Reggies have the euro banks on the run. US banks are in much better shape because they are American.

Thanks for the nice article. It will be fun to watch as the euro trash collapses. I hope some euros get into my screening line. I'll send them home and they won't come back!

Portugal's picture

USD 2,8 Tln on top of USD 14.2 Tln gives a 19.71% increase over ( the USA Debt Ceilling ) over the next few year but the bank run will be in Europe?

Portugal's picture

USD 2,8 Tln on top of USD 14.2 Tln gives a 19.71% increase over ( the USA Debt Ceilling ) over the next few year but the bank run will be in Europe?

Portugal's picture

USD 2,8 Tln on top of USD 14.2 Tln gives a 19.71% increase over ( the USA Debt Ceilling ) over the next few year but the bank run will be in Europe?

Portugal's picture

USD 2,8 Tln on top of USD 14.2 Tln gives a 19.71% increase over ( the USA Debt Ceilling ) over the next few year but the bank run will be in Europe?

MrSteve's picture

That's right, new Portugal, America prints it so you don't have to! Recall during the recent liquidity absence, the US FED was doing massive overnights and repos with european banks who needed the liquidity when LIBOR went ballistic. This just came out in the first half-assed audit of the FED. Some Yanks thought the FED ought not to "give" one red cent to the Europeans, but that is just the US being "uncontinental".

Old Portugal could probably swap yuan for euros with the Chinese if they'd give them port visiting rights for their new aircraft carrier and some plain old port, cork and olives, etc.

P.S. Ease up on the SAVE button, its just sticky sometimes.

StychoKiller's picture

Portugal, saved by madeira, madeira I say!

Akrunner907's picture

As with everything in life, timing is everything.  We all know the crash will happen, it is how long it will take to achieve critical mass that is the only unknown.  We are seeing more and more tremors that will lead to the big one, but will that occur in 6 months, 9 months, 1 year, or 2 years??  That is what I wish I could find in the crystal ball. 

Sudden Debt's picture

Like a famous Fukushima patriot once said:


I wonder what happend to the guy... he was so inlightning...

StychoKiller's picture

You fukushima buddy is glowing with (well, not pride at any rate) the "flush" of success! :>D

the banking system is bigger than Europe itself and cannot be bailed out by the entities in which they are domiciled...

A wee bit more o' growth will "solve" this problem!

Version 7's picture

Perhaps it would be more helpful to think in terms of triggering events instead of time frames. Which can they be and where they can come from. If for example oil price goes up to 150 again, there you have one.

Sudden Debt's picture


Last I heard was that Cyprus itself is looking at a default on its dept itself.

Next domino comming up :)

whopper's picture

IMO europe will crater first. Too much bad blood to be held together by Fiat paper.