The Scariest Number Revealed Today: $1.114 Trillion In Eurozone Bad Debt

Tyler Durden's picture

As we previously reported, the ECB's latest stress test was once again patently flawed from the start. Why? Because as we noted earlier, in its most draconian, "adverse" scenario, the ECB simply refused to contemplate the possibility of deflation. And here's why. Buried deep in the report, on page 75 of 178, is the following revelation which contains in it the scariest number presented to the public today.

Due to the fact that on average banks' internal definitions were less conservative than the simplified EBA approach, the application of the simplified approach led to an increase in NPE stock of €54.6 billion from €743.1 billion to €797.7 billion. The CFR and the projection of findings led to an additional increase in NPE of €81.3 billion, resulting in a total increase €135.9 billion to €879.1 billion of post-CFR NPEs across the participating banks as a result of the AQR. The impact of the application of the EBA simplified approach and the credit file review on the stock of NPEs varied amongst debtor geographies, with overall increases among SSM debtor geographies ranging from 7% to 116%.


Translated: due to a lotta ins, lotta outs, lotta what-have-you's, and the now traditional "fluidity" when it comes to European term definitions (recall that as of this year, in Europe hookers and blow contribute to (estimated) GDP otherwise the Eurozone would be in deep triple-dip recession, if not outright depression by now) the stress test, while concluding that Europe's banks are "safe", also uncovered some €136 billion in previously undisclosed NPE or "Non-Performing Exposure", aka Bad Loans - loans which will never be repaid.

Which in turn leads to the new bad loan total amount (that will also in the coming quarters be revised sharply higher) among Eurozone banks: a whopping €879 billion, or some $1.114 trillion at today's exchange rate. This amount to a stunning 9% of the the Eurozone's GDP and is precisely the reason why the ECB can't possibly even conceive of deflation, as without the much needed rising prices to inflate away this NPL debt tumor, Europe's banks are all insolvent, regardless of what today's stress test may have revealed about just a paltry 25 of them.

And then there is the question of what is the real NPLs number. If the ECB, which clearly is happy to goalseek data to fit the optimistic, "confidence-building" narrative was willing to admit that there was a massive 18% delta in European bank NPLs based just on what definition one uses to define these, as it concluded that banks are largely safe, one wonders: is the real bad debt number €2 trillion, €3 trillion, or even more, and is the ECB's sudden attention shift to the total outstanding NPLs what should be the take home message from toda, and also explains why Mario Draghi is suddenly rushing to inflate bank reserves by another €1 trillion: a number which would almost perfectly offset the negative impact of some €880 billion in bad debt.

Finally, the €64 trillion question: how long until the ECB begins monetizing secured debt on European bank balance sheets. After all, for everyone in Germany the ECB is already Europe's "bad bank." Why not end the pretense, and do away with the facade of prudent monetary policy, and admit what everyone knows: before all is said and done, and Europe implodes in a bad debt singularity, the ECB will, with 100% certainty, monetize the Eurozone's bad loans?

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knukles's picture

Lower rated EU debt = "EuroTrash"
Go go Mario

Rememberweimar's picture

Horrors... a Trillion in Monopoly Money... That we owe to the chosenites... Why does anyone go along with this?..

tarabel's picture



Um, because they're smarter than you?

palmdetroit's picture







Haus-Targaryen's picture

The ECB will go full retard CTRL+P before something explodes somewhere.  

I think the US, UK and Japan have entered their last rally in the current financial system.  I think the EMZ has one more to do after the next collapse.  

Interesting times we live in. 

Ghordius's picture

so you fully expect the ECB to return to the 3 trillion balance sheet mark, soonish? or above it? to reach the 4.4 trillion mark that the FED reached? interesting prognostication, there are lots and lots of banksters that are cheering for the same

care to make a more detailed prognostication? relative to the FED's bs? or in nominal EUR amounts? by when?

I still maintain that QE is vastly misunderstood. one half of it's reasons were the megabanks, the other half was the currency war. and you can't mention the currency war without mentioning China, since it's two trillion mark of stored USTs

so what is it? will the ECB in your view reach 4.4 in one year, while the FED stays still? that's a difference of 2.4 trillions. or perhaps 1 trillion per year? that would make nearly two and a half years, and still with the assumption that the FED does, indeed, stay put

all this because I still think that the most important part of this game is... who accumulates USTs, and what for. the FED is in many ways "just the buyer of last resort"

note "little" Turkey, with the Turkish Lira under attack. it "gently urges" it's banks to exchange EUR into USD, imo mainly because it needs the ammo to defend the Lira. Then the attack is not on the Turkish Lira vs EUR front, it's on the Turkish Lira vs USD front. behold the perks and power of a global reserve currency

Ghordius's picture

so many numbers, and assertions in this article. let's see

new bad loan total amount: €879 billion. or, "in today's CB terms", € 0.879 trillion

"Europe's banks are all insolvent, regardless of what today's stress test may have revealed about just a paltry 25 of them.

not so fast, fellah. the 130 "stress-tested" banks have, together, a total volume of 85% of the eurozone. bring that in perspective

"...why Mario Draghi is suddenly rushing to inflate bank reserves by another €1 trillion: a number which would almost perfectly offset the negative impact of some €880 billion in bad debt."

so is this the "butcher's bill"? a number similar to TARP/TALP? 1 Trillion? Which is the very amount by which the ECB decreased it's balance sheet, lately?

"Finally, the €64 trillion question: how long until the ECB begins monetizing secured debt on European bank balance sheets."

Well, Tyler points out that there is not enough collateral, for that, eurozone small and medium businesses being so damn conservative with their assets and keeping them so much private instead of going public, and so creating suitable collateral. Isn't that a very high price tag, sixty-four, for a question about one trillion?

"After all, for everyone in Germany the ECB is already Europe's "bad bank." Why not end the pretense, and do away with the facade of prudent monetary policy, and admit what everyone knows: before all is said and done, and Europe implodes in a bad debt singularity, the ECB will, with 100% certainty, monetize the Eurozone's bad loans?

Any evidence for that? Including "Germany's opinion"?

look, it's simple. the US had TARP and TALP. The request for the eurozone to "do the same" is still there, hanging in the air and in all those articles. price tag: 1 trillion

the ECB pumped instead liquidity, reaching the 3 trillion mark. and now returned to the 2 trillion mark. Difference: 1 trillion (9% of eurozone's GDP)

that's one (1) frigging trillion the banks want to have. all the rest is noise

but don't tell me that if the ECB would somehow (question is how) come back to the 3 trillion mark - while the FED stays at the 4.4 trillion mark - and somehow bankroll this one trillion of bad debts... that this would be the "doom moment". the two "big boyz" were, at one point, both at a 2 trillion mark. and had a 1 trillion currency swap trick going on, which was then reversed

meanwhile, I do question the original 0.879 trillion "bad debt" "price tag", reminiscent of Hank Paulson's price tag of a few years ago

"doom" has a price, in this article, but it is not 64, it's 1. and the real degeneracy of our times is how easily banks are raising demands for 1 trillion. and yet it's not the straw that can break the ECB's camel back, then it was just detracted from it's perch. in the case of the FED... it went from 2 to 4.4

SAT 800's picture

What could possible go wrong?

ekm1's picture

Memo to the writer:

Read some European History.


There will never ever ever be an ECB QE like Fed does.

Europe will go to war with itself, literally speaking

ekm1's picture

Wars over arable land for control of food will never stop

Bangalore Equity Trader's picture

Listen EKM1.

I do believe that USSA QE set the "TONE" for the big "DEFENSIVE PLAYS" in the financial markets.

Meaning: "If things get really scarey, potentially fatal for a Regional Economy, the Central Bank will intervene.

The soothing physiology imparted from their actions 2008-2014 is what supports their #1 product, "CON-fidence in Fiat".

So the numbers will continue to grow, whitewashed as insignificant in the bigger picture. It's all just a bunch of 1's and 0's anyway.

We've got another 100 years of CB dominance and minor Booms and Busts around the globe.

ekm1's picture

There is no such thing as 'central bank dominance', never existed and it will never exist.

Putin proves my logic

Guns and assassinations end up solving problems and I am speaking literally

Son of Loki's picture

So all those peoples borrowed over $1 Trillion smakeroos? Where'd it go? Didn't just disappear.

Simply go after the asset purchased with the borrowed money; or are they too lazy or simply don't want to give it back since it's resting peacefully in Swiss bank accounts?

ekm1's picture

People do not understand how money is created and what money is.

When you buy a $40k car this is what happens:


Bank creates $40K RESERVES on dealer's account

Bank creates $40k LOAN/CREDIT to you at 4% for 5 years


So, RESERVES and Credit/Loans are created SIMULTANEOUSLY.

Loan/debt can be extinguished by paying it down or default. 


Debt is paid down with RESERVES (cash)

Problem is that reserves cannot be extinguished by banks. Only Fedederal Reserve or Congress/Federal Gov can extinguish reserves.


Like this the economy via commercial banks creates 97% of the money.


So, those Eur 1 trillion RESERVES did not disappear. But the DEBT/LOAN which was created simultaneously CANNOT BE paid down with RESERVES because debt holder have no reserves and any means of obtaining those reserves.




gatorengineer's picture

Dont think you got this correct.  The reserve would be for the difference in the value of the asset less its recovery costs, versus  the loan balance.  THis would be in a normal accounting world since we have mark to Unicorn, who knows what they do, but i think it can be assumed that there are no meaningful reserves on the books.  The last few years banks have been releasing their reserves to profit.  What you havent seen are hits on the banks numbers due to increasing bad loans (Yet) or possibly ever.

To put a magnitude on the size of the whole the best credit cards out there are around 10% apr.... in 7 years, well rule of 72, the whole should have been more than completely filled when they borrow from the fed at 0....


all-priced-in's picture

ekm is not talking about loan loss reserves.

But this type of reserve.


Kprime's picture

So US kids have borrowed 1.2 trillion for school loans.  What are you going to repossess when the defaults get really big?

all-priced-in's picture

Some days I think it will be paid off with their VOTES.


They will vote for the guy that will help them write off the debt that they didn't understand and would not have borrowed if they would have knew it would have to be paid back.


You know sort of like sub prime home mortgages -



orez65's picture

"So all those peoples borrowed over $1 Trillion smakeroos? Where'd it go? Didn't just disappear."

As any Spaniard would explain to you:

"It was danced away"

Bangalore Equity Trader's picture

Listen EKM1.

You have been watching too many USSA movies out of the "FILTHY" land of Hollywood. Brainwashed into violence and thuggish thoughts.

Next movie I command you to view is: Dilwale Dulhaniya Le Jayenge, the Indian classic.

You will then start to understand. At least 100 years of dominance.

HardlyZero's picture

Keynesian wet dream: Nobody does it better...FED makes me sad for the rest.  

FED has the privilege of fiat Reserve Currency for now.

Later not so much.

KnuckleDragger-X's picture

If your going to troll here you really need to bring your game up a couple of notches....

Bangalore Equity Trader's picture


Weekends use to rock on The Hedge. B9K9, Trav777, a long list of "REAL" good posters all chased off by the drivel that drips from your keyboard.

Duties of the 'Troll Manager', identify and manage the troll.
Get it? Not too hard is it? $6 USD bucks per hour, OK? On a 1099 basis.

When Murdock bought out this website it really started going down hill, now they pay CNN to plug it. All the life has drained from it. Murdock uses it as a news incubator.

Where did B9K9 go?

Ghordius's picture

ekm1: "There is no such thing as 'central bank dominance', never existed and it will never exist."


what does exist is a global reserve currency status. which China and Russia find distasteful

what did exist was the Old World Order, centered on the UN. Where Bush tore the book, something China and Russia find distasteful

what does exist is the IMF (and the World Bank). Which China and Russia want to reform, or else have their own institutions

but there is no such thing as a "central bank dominance", globally. At the end, national banks are parts of the "state weaponry" of the owning sovereigns

so claiming a "central bank dominance" during a full blown currency war is the same as claiming the "dominance of the military" during a full blown war. it sounds like truthiness, but it hides the fact that those militaries are busy butchering each other, for "national interests"

fxpmtrader's picture

That's what Europe is all about - to again end up in civil wars.
With the bankers and the 0.01% again laughing all the way to their bank.
And the sheeple again in coffins or as guinea pigs or dog food.

Result of 99.99% dumbasses weltering since decades in their own dirt and ignorance.
And relentlessly re-electing the same criminals into power.
What else to expect?

This type of remote controlled brainless degenerated animals rightly deserve/call to be slaughtered.


Ghordius's picture

thanks, but no, thanks. and our wars aren't "civil wars". though we had a tradition of conducting them in a civilized way, which is altogether a different thing

have your wars... somewhere else. thank you very much

WillyGroper's picture


I take it the populace was unarmed in your native land. 

I was wonder just how out of hand it got when the food was scarce?


sun tzu's picture

Wars? Sounds bullish to me. 

KnuckleDragger-X's picture

As long as your not the person humping a rucksack and a rifle over hill and dale for the privilege of being shot at.

fxpmtrader's picture

Fuck the 0.01% deceiving and stealing criminals - on top of the ponzi.

Fuck the 99.99% ignorant and dumb sheeple - who let it happen.

Pooper Popper's picture

Save the whales,,,

Fuck the sheep,,,,


The sooner these Fuckers are in their dirt nap,the better

Urban Redneck's picture

They already do too much of that in Europe (literally).

Ghordius's picture

yeah, but did you have a look at those sheep's eyes? beautiful, with long leashes

Bunga Bunga's picture

Everyone expected the Eurozone to explode tomorrow, right? New ATHs in the cards.

i_call_you_my_base's picture

Why would anyone have expected that? Stress tests are always to support confidence. That is their objective. They are by definition always positive. If they weren't postiive they wouldn't do them.

AustrianJim's picture

Call me when it hits 17 trillion.

NoWayJose's picture

Just like the crap the big banks swapped onto the Fed's balance sheet - Mario will get these NPLs onto the ECB's balance sheet! Germany has been too quiet.

Bernoulli's picture

879.1 Billion EUR? 1.114 Trillion USD?

8+7+9+1=25, 2+5=7


This seven thing gives you at least a straw to hold on in these insecure and unpredictable times.

knukles's picture

Damn.  Lookit that, Mabel!  Betchu he invented a theorem or sumptin'!

Hulk's picture

Studying Bernoullis equation always made me go pee...

SAT 800's picture

It's giving me a Uro problem, too.

Its_the_economy_stupid's picture

"the ECB will, with 100% certainty, monetize the Eurozone's bad loans?"


How does one play this horse?

sun tzu's picture

Long on the market and margin to the hilt

trebuchet's picture

long italian banks (on margin, beware volatility drop and panic if some funds not positioned right),  short gold,  deflation is being fought by ECB, so ZH here actually saying deflation NOT coming... 

...  that is why ECB never contemplated the scenario, because it will do everything it takes including monetiise bad debt ... 

... when inflation kicks in, reverse


jubber's picture

FTSEMIB already UP 200 points from Fridays close

THE DORK OF CORK's picture

Ok people can't service the debt. (what has this got to do with the physical economy ? )

But you don't have to monetize it.


You simply give the debt holder the asset and turn deposits into equity like money.

Eventully these "assets" will find the right price level.


No need to destroy anybodies life for a (demonic) concept of money as debt.



Again - the problem in the eurozone is a chronic lack of purchasing power as the dark lords wanted us to be competitive.......for some reason.

As it became apparent that we could not trade with Mars (engage in further economic expansion) the euro system of extraction began to break down.


The stuff has been built already - there is no lack of stuff problem.


Why do we sacrifice our life force so that banks can somehow restart their scarcity engine ?