Spot The Odd Continent Out: Total Bank Assets As % Of GDP

Tyler Durden's picture

There is a reason why in Europe, no matter how much some want to deny it, the Cyprus deposit confiscation "resolution" has become the norm. Quite simply, as BofA summarizes, "Europe's economy struggles with too many banks, too much debt and too little growth. A long history of empire, trade, war and commerce means a long history of banking. The world’s first state-guaranteed bank was the Bank of Venice, founded in 1157, and the world’s oldest bank today is also Italian, Monte Paschi di Siena (founded 1472). In many European countries, bank assets dwarf the size of the local economy and are far in excess of other regions in the world. This is similarly reflected in the local stock exchanges: even now financials account for 42% of the Spanish stock market and 31% of the Italian stock market versus  ust 16% in the US."

Visually, this translates as the following dramatic chart, which shows why Europe no longer has a choice in kicking the can, and what we have said from the very beginning, a Mellonesque asset liquidation of bad "assets" is the only option:

It is in Europe that the biggest debt burden lies, and it is Europe that is desperate for the biggest inflation impulse to purge away the debt in the absence of liquidation, or a spike in asset quality. However, as we showed yesterday with Europe's €500 billion NPL timebomb, the asset quality of Europe's banking sector is imploding at an unprecedented pace, and is correlated most tightly to the surging unemployment in the periphery, which intuitively makes much sense: without jobs, consumers can't pay off their debt.


... compared to unemployment:

This means that the only resolution to a massively overlevered banking sector, where inflation just refuses to arrive and assist in the bad-asset "cleansing", is the start of liability impairment, which will allow the long overdue process of balance sheet restructuring, instead of merely can kicking, to commence. Whether this implies deposit confiscation, well that matters in which country one is, and how many NPLs have been accumulated.

And another problem: the reason why core inflation is gone from Europe is that not only is the hot central bank money not targeting European assets (except for new Japanese Yen chasing after peripheral bonds for as long as there is a carry trade arb, which at this rate won't last long), but because credit creation in the private sector is dead: as the chart below shows, even credit growth in Germany is now negative:

So what is the only option for a continent in which there are simply too many encumbered assets (recall that unlike the US the bulk of credit in Europe is secured - perhaps the starkest difference between the two credit systems) and in which the private sector credit creation pipeline is clogged: simple - the ECB has to join the Fed and the BOJ in monetizing assets, and creating "credit growth" de novo. Alas, as the past three years have shown, when it comes to outright monetization in Europe, not only does it have to be sterilized to appease the (correctly) inflation-weary Germans (i.e., the SMP; the terms of its replacement, the OMT, still technically don't exist), but most likely has to come in the form of a structured debt vehicle or an extended loan, like the ESM or the LTRO.

In fact, none other than former ECB member Lorenzo Bini Smaghi told Goldman's Allison Nathan in a recent interview that QE by the ECB - an outcome most expect once the impact of BOJ QE fizzles - is unlikely. The reason why:

Lorenzo Bini Smaghi: QE in Europe would likely entail the ECB purchasing a representative basket of Euro area government bonds. And so they would probably have to buy large quantities of German and French bonds, rather than the bonds of countries that could use more support; the impact on spreads would not necessarily be in the right direction. So from a technical point of view, the case for QE in Europe is less clear cut.

Needless to say, his outlook on Europe is less than optimistic:

Lorenzo Bini Smaghi: In 15 years I'm a bit more confident because I think the adjustments will have been made. Europe will become more competitive and stronger. So I am a long-term optimist. But I am also a short-term pessimist; the near-term adjustment is maybe a bit too tough and too front-loaded so the next five years are going to be very difficult.

And to think all of this could have been avoided if the Mellon advice of liquidating bad assets, which have accumulated in massive proportions in Europe (and in the shadow banking system in the US, but that is the topic of a different post), had been heeded, as we suggested, from the very beginning. To quote Andrew Mellon:

The government must keep its hands off and let the slump liquidate itself. Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. When the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. A panic is not altogether a bad thing. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.

Of course, the time for liquidation will come sooner or later, only this time the pain and suffering that will accompany it will be order of magnitude greater than had the system been purged in the dark days following the Lehman collapse.

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Yen Cross's picture

     The tiny one that exports terrorism? I'm sorry (caugh caugh) Oil.

   There's lots of demand out there. (sarc) Commodities are screaming sell sell sell.


RockyRacoon's picture

Thanks for that nasty-ass chart.  Real "wealth" is being slaughtered, whereas, paper wealth is being flung about like crap in the monkey cage.   I think Mellon's sentiment is right on but those who will lose the most are the ones in control (for now).  They are not going to let go of their freshly printed currency and are more than willing to print up loads of new paper to inflate their way out of their predicament.  This coming crash is going to dwarf anything yet in recorded history -- except perhaps for the Dark Ages.  It's not a new Depression that's coming, it's the age of dis-enlightenment.

Yen Cross's picture

       Paper profits= moar silver and platinum. And some Tips via Knuks advice...

rotagen's picture

"people will work harder, live a more moral life"  When an economist starts talking about morals I get instant nausea.


Here's a guy whose career involves studying a system which is 100% corrupt in design and implementation, talking about F-ing morals, and somehow equating them with being an ignorant slave.

dunce's picture

Some people get upset when "anybody" talks about morals, is that your problem?

BarnacleBill's picture

Not a bad summary, if I say so myself. There is a savage confiscation schedule ahead of us - maybe starting in Europe, maybe not. The ABN-AMRO precedent is more worrying than the Cyprus one, I think.

bank guy in Brussels's picture

Something indeed is going to snap here in Europe.

Good question whether before or after the German election in September.

Was interesting watching Jim O'Neill, the retiring 'BRICs' guru of Goldman Sachs the Squid, on financial telly the other week. In the long interview O'Neill happened to reveal what the Goldman network, including such as the ECB's Mario Draghi, was telling him about Europe.

O'Neill basically said everyone in Europe, including the Germans, really understand that the current euro-zone mess is non-sustainable, but fixing it was on hold till Merkel's chance at re-election.

After that, O'Neill said there was going to be a big euro-zone soul-searching and attempt to 'fix' the whole crisis, either by making a 'U S of Europe' with pooling debts, inflating etc. ... or by the euro-zone breaking up.

O'Neill said he really didn't know the outcome, but he was a little inclined to think EU political consolidation would be implemented ... he didn't give a figure but he seemed to be placing the odds at about 55 %.

My view is more the opposite ... I think the populist anger of European peoples, against the EU, is past the point of no return. I think the euro-zone will break up and we will have a giant shite-storm of banking collapses and bad debt defaults and liquidation.

May be a good thing in the end.

Rustysilver's picture

Bank Guy,

For Europe to integrated "more" the treaties have to be amended ever so slightly (which would take years). France and German would never have a referendum because it will not pass.

Merkel, if she wins, will be weaker and won't be able to do much (whatever she was doing up to now).  I see a slow degradation not a big reset.

andrewp111's picture

You would be amazed at how fast things can happen in an emergency. You might see a whole new EU Constitution written in the dead of night and rammed through the Parliaments before the sheeple even get to read it.

RockyRacoon's picture

That really would be a new "US of Europe"!  Passing legislation before anyone gets to read it.

Wile-E-Coyote's picture

I see mass social unrest in Europe starting in the crucified southern countries. Why the people of Greece arn't burning their parliamnet down is a mystery, are they putting something in the water? Watch France it is sliding into a shit storm, if it gets bad watch out. There will be NO USE. The people of the UK badly want a vote to get out of Europe, when not if the UK leaves it is game over.  That's why O'Barmy has been sticking his fat nose into UK politics recently. The Euro dream is over but the unelected politicos in Brussels won't go without a fight, but go they will.

RockyRacoon's picture

Many European countries have unassimilated "citizens" in enclaves of their own.  Yet another "US of Europe" scenario:  Watts Riots!  Cops wouldn't even go into Watts, and even the military won't go into some of these European areas when they ignite.  The world will get to see how effective "gun laws" are when folks come out fully armed from every parapet.

Wile-E-Coyote's picture

You don't need guns to fight urban war, anything heavy will do. Create a spiders web!!

el Gallinazo's picture


I cannot see an intensional break-up of the Eurozone by the Eurozone as it is such a pillar of the NWO global takedown.  This has been in the works for well over a century.  They knew when it was planned that it would lead to an economic disaster which is now appearing before our eyes. However, the "solution" is a United States of Europe.  As David Icke puts it, "Problem, Reaction, Solution.  Rinse and repeat."  Problem - the economic disaster of the Euro.  Reaction - the people of the EZ becoming totally desperate.  Solution - the United States of Europe (with the loss of all national sovereignty).


As to "popular opposition," they will meet that when it comes either with fraudulent election results or suppression by armed military force, probably NATO with various units acting in countries with different cultures and languages than their own and with some historical cultural antipathy, such as Turkish NATO forces in Greece or the Balkan countries.  This is not to say that the Eurozone will not break up.  It is just to say that it would not be a voluntary move by the cabal behind the current governments and could only happen through individual national revolts that could not be successfully suppressed.


dunce's picture

The central dogma of socialism is central planning by genius technocrats rather than freely elected representatives. They often call them selves progressives without really defining their goals. Lots of soaring generalities, fraternity, equality, world peace as described by beauty contestants. They are half way there in Europe with the bozos in Brussels. They could be planning a huge crash to have a crisis to exploit and present their plan as the only way out of the mess they have made. They are  ones that said never let a crisis go to waste. They are all evil people so there is no reason to believe that anything they fashion will be the least bit good.

css1971's picture

Except. Socialist parties won't let it happen. They'll devalue their way out. Even the Germans.

All Risk No Reward's picture

Do you really think "socialist parties" are in control and not the banksters that lend the nations money and finance the campaigns of their operatives into positions of power so they can pretend to be socialists?

If so, you are most certainly wrong.

Napoleon understood this 200 years ago!

“When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.”
? Napoleon Bonaparte

ootofthehoos's picture

The bankers are socialists. I think they are not pretending. The NAZI party is national socialism. It was financed by bankers. The communist USSR revolution was financed by bankers and so was Mao China communist revolution. Bankers implement communism/socialism because it is a method to control all goods and services in an economy and thus guarantee the profitability of their banks' investments and their place at the top of the pyramid. You are watching the same banker/communism partnership being implemented via EU, USA, IMF and ECB and global banking to preserve their world banking empire.



Antony C. Sutton

All Risk No Reward's picture

oot, we have to define terms.

the word socialist has a meaning:

1. Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy. 2. The stage in Marxist-Leninist theory intermediate between capitalism and communism, in which collective ownership of the economy under the dictatorship of the proletariat has not yet been successfully achieved.

Neither of those definitions described the Nazis or Mao or the Banksters.  "Oligarch authoritarians" is a much better term.

A wolf cloaked in sheep's clothing is not a sheep.

I get where you are coming from, thbough, as every implementation that called itself "socialsim" or "communism" was, in fact, an oligarch authoritarian governmental structure.

The problem is that the social engineers bastardize the language so that we talk past each other without actually transferring meaning that might highlight the true criminals - the authoritarian oligarchs.

When we are aware that language is being manipulated, we can be very careful to define terms and use them consistently so that we can actually transfer real information in an effort to identify and solve real problems.

Smegley Wanxalot's picture

Why isn't Israel on that bar chart? 

I see UAE, Egypt, and Saudi, but not the most advanced economy in the region?


Colonel Klink's picture

Because we're not allowed to talk about the wankers.

orez65's picture

Liquidation is not going to happen through default, it'll have to be done through inflation.

A friend just explained it to me, "... if we had liquidated after Lehman's collapse, people would have suffered"

The sheep are truly clueless!!

RockyRacoon's picture

...people would have suffered.

Define "people".  Bankers and rent-seekers are not people.  They are a subspecies of leeches and other parasites.

They SHOULD suffer.

Only problem being that they are the ones calling the shots.

Charles Wilson's picture

I notice that there is, in the first graph, a label named "Saudi".  I don't find that on any map.

If the graph was large enough, would there be a label with "Kim Jong Un" on it?

What do we call  a region where the family is the name of the area?

A "Slave Holding State"?



SafelyGraze's picture

it's good to be Sa'ud

An essential part of family wealth is the Kingdom in its physical entirety, which the Al Saud view as a totally owned family asset.

Fuku Ben's picture

I'm sure the emergency G7 meeting this weekend will straighten everything out

Kayman's picture

Gentlemen.... we have too many dikes, not enough fingers.  Please remove your shoes and socks...

Dave Thomas's picture

Drop those spiderman underpants while your at it.

Inthemix96's picture

Where is Isreal?

Or is that taboo on here now?  Seeing as you lot give them some 3 billion a year why are they not represented here?  And fuck knows how much we give them?


Floodmaster's picture

I dare you to speak against our organisation,

andrewp111's picture

They are simply too small to appear on that chart. Most countries aren't there either.

Wile-E-Coyote's picture

You just got yourself banned you can't mention Is.......... any more, shit I nearly fell into the same trap, and if you want to get droned just go for the J.... word. Fuck me a drone has just started circling my house.

rlouis's picture

If they really wanted inflation they would let the price of gold rise.

andrewp111's picture

Hell, they could drive up the price of gold by buying it. It would take a lot less printed money than $85B/mo to do that. It wouldn't create real inflation, though. Real inflation is wage-price inflation. If wages do not rise, commodity inflation tends to be very temporary, and gets reversed in a crash. There are only 2 ways to get real inflation. One is a return to global protectionism, as in Smoot-Hawley everywhere. Another would be a global Treaty to set minimum wages, grant union rights, and impose severe sanctions against countries that did not comply, and that would require a global sovereign entity to enforce it.

Wile-E-Coyote's picture

Soros is investing in Gold, watch out.

A Man without Qualities's picture

The problem with this data is it is using different accounting standards.  US accounting standards for JP Morgan show 40% less than if under IAS.  It's all about how you compare gross and net derivative exposure...

Tyler Durden's picture

Hence this: "to think all of this could have been avoided if the Mellon advice of
liquidating bad assets, which have accumulated in massive proportions in
Europe (and in the shadow banking system in the US, but that is the
topic of a different post)

Bay of Pigs's picture

"The vast majority of the difference stems from the way JPMorgan reports derivatives. On a net basis, the company showed $70.6 billion of derivatives on the asset side of its balance sheet. Meanwhile, the gross value was $1.53 trillion. U.S. accounting rules let banks offset huge chunks of their assets and liabilities against each for financial-reporting purposes -- hence, the big gap between the gross and net numbers."


falak pema's picture

By not integrating in the above official figures the shadow banking statistics isn't the financial world just pulling the wool over its own eyes?

Who are they kidding?

And why don't the governments of these shadow banking dominated financial institutions acknowledge that? 

Its now five years that the one eyed banks lead the blind politicians; who pretend to have "everything under control".

And here is a typical sample of this latest official hopium, blue sky propoganda type spiel (if you believe the math of the contrarian threads) :

THIS GUY SHOULD KNOW THE TRUE SCORE...a world where financial arithmetic is an obscurantist art.

andrewp111's picture

No one knows who is truly swimming naked until the tide goes out. A lot depends on which order the dominoes fail, and thus who collects and who doesn't.

falak pema's picture

thats the whole purpose of this article and printing those charts!

To show up who is most likely to be naked when the tide goes out; UNLESS the data is cooked without derivatives included.

My point is aren't we in this game of : lies, damn lies and ....?

Yen Cross's picture

    I just had a conversation with the guy at my local 'Bottle Shop', re. shadow inventory, and how the banks are holding back supply to inflate prices. He's thinking about a purchase, so I let him have it. NINJA loans and all.

   He's a biology major, so hopefully some Darwinism sunk into his cranium. (not to be confused with Cramerism)

screw face's picture

....bullish...really like this part....."generally accepted accounting principles".


Floodmaster's picture

Banks have valuable?

Pairadimes's picture

Somewhere to the right of the lines on several of those charts is an exchange of gunfire.

q99x2's picture

Is Greece going to default?