In Europe, It's All About The Bank (Run)

Tyler Durden's picture


The word 'encumbrance' has received a lot of headlines in the last few months - and rightfully so - after we pointed out the impact that LTROs had in subordinating senior creditors of European banks. As Morgan Stanley points out, this is a considerable problem for bondholders as 'in a wind-down scenario, senior unsecured holders have recourse to fewer assets and hence face a higher loss given default (LGD)'. In understanding just how bad things are for European banks, it is important to focus on 'how much loss-absorbing capital there is beneath you in the bank’s liability stack, as this is the capital that will take losses before senior creditors in the event of a bail-in' which means looking at Deposits as well as encumbrance.

Last night we showed the Loan-to-Deposit ratios for various banks across Europe and Morgan Stanley takes up the offensive noting that the encumbrance effect from depositor preference changes (i.e. withdrawal) is the real threat. While the relative size of the deposit bases of the dozen or so banks that are analyzed below is stunning (with MS estimating best-case recovery in a bank default at around 80% and worst-case a total loss - implying of course that equity is entirely worthless - which we largely knew) and what is very apparent from the pictorial representations of banks’ liability structures is that rather than encumbrance from covered bonds/LTRO etc. the bigger issue for encumbrance of senior unsecured investors is the potential threat from depositor 'runs'.

The key is that all the hope of another LTRO is limited by collateral as policy-makers are well aware that, in a world where failing banks are to be resolved through resolution frameworks and senior creditors are to take losses to shield taxpayers’ funds, banks may not have enough ‘bail-in-able’ debt, given their growing reliance on secured funding sources.


With deposits increasingly impaired - and/or the potential for contagious bank runs if we see Grexit, Europe's problem is 'all about the bank runs' now and we were told yesterday how far off that is.

We would suspect though that was Greece to leave then the move to a Euro-wide deposit scheme - and its implicit exchange of sovereignty for monetary support - would evolve quicker; but the crisis has to come first for European leaders to do anything other than talk.

or as Jefferies' David Zervos recently noted:

"Once mom and pop in the rest of EMU see the Greek banks shuttered, there will be a southern European run. The imbalances in Target2 will shift massively against Germany and their only chance will be to cave in and accept mutual liability bond issuance and deposit insurance.


Basically, we are on the fast track to a Europe with a pan mutual socialized downside, backed by the Germans and ultimately the ECB. It will be a bumpy ride, and we will lose the Greeks and maybe some others along the way. But a smaller, more sound, more stable, more fiscally profligate and more socialist Europe is coming quickly to the global capital markets. And its about freakin' time!"

Deposits and Encumbered/Secured Assets...


Source: Morgan Stanley

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Thu, 05/24/2012 - 13:48 | 2459477 SourNStout
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The Run is already in progress

Italy & Spain are waiting in the wings to do the same

Audit---Expose---End it

Thu, 05/24/2012 - 13:50 | 2459482 Ahmeexnal
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EU Demands ID Chip for all European Citizens
May 24, 2012

The European Union is now moving to create a mandatory electronic ID system for all EU citizens that would be implemented across Europe to standardize business both online and in person, authenticating users via a common ‘electronic signature.’ A single authenticating ID would guard access to the Internet, online data and most commerce. It is nothing short of an attempt to phase in a Mark of the Beast system, and a prominent Bilderberg attendee is behind the scheme.

Thu, 05/24/2012 - 13:53 | 2459500 midgetrannyporn
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I pity the fool who tries to give me a chip. [/Mr. T]

Thu, 05/24/2012 - 14:09 | 2459566 slewie the pi-rat
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is this theReturn0'theSerialJunkster?

here is some serial music for trolling zH during the running of the bullshit:

Music Video - "Da Do Run Run" - The Crystals - 1963 - YouTube

even the charts are erect in this market, boys&girls (& both)

here is a saminal piece which mentions the mighty tylerD, the acutely acute turdF, and is about one of our fave bankster hideouts, the jpMorgue, too!  plus, this explains how the tail wags the doggy in the (how much?) derivatives window where zombies cavort in their dances of: death to you and yours, financially

USTBond Tower of Babel Teeters
By: Jim Willie CB

Thu, 05/24/2012 - 17:29 | 2460309 TJ00
TJ00's picture

Just don't drink the what Face gives you, otherwise you'll end up in a foreign country with an implanted chip.

Thu, 05/24/2012 - 13:55 | 2459509 SourNStout
SourNStout's picture

It's a Brave New World

US passports have RFID chips within the jackets now. Had no idea until I received my new one the other day...


Thu, 05/24/2012 - 21:55 | 2459846 DoChenRollingBearing
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I bought a sleeve a couple of years ago that blocks the chip signal.  That might be useful in the future, that bomb in the Paris garbage can won't go off around me because the trigger received a US passport chip signal...

Thu, 05/24/2012 - 15:59 | 2459996 TBT or not TBT
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Have a microwave oven handy?

Thu, 05/24/2012 - 14:06 | 2459555 Vince Clortho
Vince Clortho's picture

Do you have any sources for the electronic ID system plans?

Fri, 05/25/2012 - 05:34 | 2461558 Archduke
Archduke's picture

they've been floating around the idea of epidermic barcodes as well.


you have to put this in a European context -sic the last time bar codes were used-

to understand how this is posutring and will never ever happen in the EU/eurozone.


It does send a dangerous right-wing signal, though.




Thu, 05/24/2012 - 21:50 | 2461040 Buck Johnson
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Spain is a complete mess, they are about to implode.  And once Greece breaks, all hell breaks out. 

Thu, 05/24/2012 - 13:49 | 2459478 SilverTree
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All into Gold.

Thu, 05/24/2012 - 13:59 | 2459526 mayhem_korner
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Doubtful.  They will convert to USD, Swiss Francs, or some other currency they believe is trustworthy.  Sorta "out of the fryin' pan..."

Thu, 05/24/2012 - 15:08 | 2459793 BlandJoe24
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I've heard that there is not even remotely enough physical gold to act as a global reserve currency, and so - at least in the near-medium term - some fiat currency will remain the reserve/safe harbor.  Thoughts?

Thu, 05/24/2012 - 15:16 | 2459862 DoChenRollingBearing
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There is plenty of gold.  You just have to pay the price.  That will be true in the future as well, but the price is likely going MUCH higher!

Thu, 05/24/2012 - 14:01 | 2459533 Winston Churchill
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Don't think it's quite time to go full in.

Holding 50% in PMs.(lost in a gardening accident).

50%cash in basket of currencies(no euros).

No other paper,out of all stocks, bonds etc.

Will probably miss the PM low,but trying to time anything

in this 'market' is for the birds.

Thu, 05/24/2012 - 14:11 | 2459577 mayhem_korner
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No other paper...


Consider some holdings in "toilet".

Thu, 05/24/2012 - 14:17 | 2459602 Max Fischer
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All into Gold....

With gold ~$400 off its highs and silver firmly in a bear market, how/why do you idiots convince yourselves that everyone is running into precioius metals?  Like malfunctioning robots, the PM lemming brigade pukes up this garbage all day, every day and yet there's absolutely NO proof to back it up.  The charts clearly demonstrate that you're wrong.  

The actual facts suggest that everyone is fleeing into US debt for safety.... which is the EXACT OPPOSITE of everything you morons have predicted. 



Thu, 05/24/2012 - 14:22 | 2459622 Paul Atreides
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That's why central banks are buying massive amounts of gold across the world and the Federal Reserve bought 64% of USTs and 80%+ of long USTs in 2011. Sounds to me like your a bit dillusional....

Thu, 05/24/2012 - 14:27 | 2459657 Max Fischer
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Looks to me that the market is in perfect agreement with the Fed's decision to buy bonds.  Here, in 2012, US debt continues to be the safe haven of choice. Each debt auction sets new world records.  

Secondly, even if a few select central banks bought gold to balance their reserves, the price has still fallen by ~$400 in the past year.  As faith in the Euro continues to erode, gold can barely catch a bid.... even with central bank purchases.  Clearly, there are more sellers than buyers. 


Thu, 05/24/2012 - 14:47 | 2459705 Paul Atreides
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Looks to me that the market is in perfect agreement with the Fed's decision to buy bonds.  Here, in 2012, US debt continues to be the safe haven of choice. Each debt auction sets new world records.  - Records for what? Lowest yields? Here please let me pay you to store my money in a massive bubble.

Secondly, even if a few select central banks bought gold to balance their reserves, the price has still fallen by ~$400 in the past year. - An Excellent chance to accumulate for us little folk before the contagien from the EU spreads worldwide. Those naked shorts that keep getting dumped on the comex are worthless, people are selling the crappy paper gold before the music stops pushing down the spot price and quietly accumulating physical on the side.

As faith in the Euro continues to erode, gold can barely catch a bid.... even with central bank purchases.  Clearly, there are more sellers than buyers. - If it is clear to you then please share your data with us, I would like to see evidence of more sellers then buyers. Can you also provide evidence that the US can actually pay off $16 trillion in debt and $119 Trillion in unfunded liabilities? Thats some data all of ZH would really like to see....

Thu, 05/24/2012 - 17:03 | 2460227 Max Fischer
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I would like to see evidence of more sellers then buyers......


Ummmm..... what do you think a decline from $1900+ to ~1550 means?  Your "proof" is right in front of your face.

Can you also provide evidence that the US can actually pay off $16 trillion in debt and $119 Trillion in unfunded liabilities?

If a person making $60,000 a year takes out a $200,000 30 year mortgage, is he bankrupt?  



Thu, 05/24/2012 - 18:10 | 2460262 fuu
fuu's picture

In every sale there is a buyer and a seller...

Sat, 05/26/2012 - 09:57 | 2465085 MeelionDollerBogus
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"If a person making $60,000 a year takes out a $200,000 30 year mortgage, is he bankrupt? "

Some are. Those numbers aren't enough to say one way or another.

1900 is a fair price but in terms of monetary risk it was a bit early, grabbing gold bullion as insurance vs that risk. For others it was a great time to use GLD Puts and I did.

Thu, 05/24/2012 - 14:47 | 2459721 fuu
fuu's picture

Keep pimping that bubble hypocrite boy.

Thu, 05/24/2012 - 14:35 | 2459679 i_call_you_my_base
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Actually, many people here predict the flee to US debt prior to massive printing which will then cause that to faulter as well. Also, who cares about six months out? Seems like most people here are planning for three or more years into the future. And unless you believe long-term deflation is in the cards, there is not much to argue against.

Thu, 05/24/2012 - 15:29 | 2459844 BlandJoe24
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Six months of deflation out could be very significat for your three-four years out return.  If in the next six months the dollar continues to rally while  price of gold continues to decline, then buying much more gold with fewer dollars six months from now will be that much more appreciated years down the line when deflation lifts and hyperinflation kicks in ....

But, more importantly, there is a possibility of severe near-medium term deflation.  And then not many people will be worrying about what they can do to invest for long-term gains, they'll be worrying about immediate basic needs.  And in that case cash in king, and hard assets - even gold - will be sold as needed just for survival. 

It doesn't take three-four years to get hungry.... It may be most prudent to build up cash reserves, food/etc. reserves, and community interconnectedness reserves first, and only add gold if you have all that handled and have extra for long term investment. 

Thu, 05/24/2012 - 14:40 | 2459701 unununium
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This is 1979, kapish?  Only difference is the CPI is doctored now.  Enjoy your bonds.

Thu, 05/24/2012 - 16:02 | 2460005 TBT or not TBT
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What was the ratio of total debt to GDP in 1979?     Vs Today?

This is not 1979.   We have debt deflation, and a dearth of credit out there.

Thu, 05/24/2012 - 14:46 | 2459720 snakeboat
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You and MDB are precious.

Thu, 05/24/2012 - 15:16 | 2459857 RoadKill
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Most of the PM bugs on here can't even give you a rationale explanation of why they own gold.

They think gold should go up in every possible scenario.  If the Fed and ECB print - gold should go up because of inflation.  If a country declares bankrupcy and/or its banks go tits up - gold should go up because of fear.

Greece, Portugal, Spain and Italy declaring bankrupcy is BAD for PMs.  Bankruns are BAD for PMs.  A dissolution of the Euro is BAD for PMs.  A bear market in stocks is BAD for PMs.  Record low interest rates are BAD for PMs.

What is good for PMs?  US monetizing its debt rather then cutting spending.  The Euro staying togeather and the ECB hitting cntl-P.

If you own gold you have to realize you are betting on INFLATION.  You are betting that central banks will continue debasing their currencies rather then accepting defaults, reorganization and deflation.  BTW stocks will go up just as much as PMs in this scenario.  And levered longs will go to the freaking moon because the value of your equities will go up with inflation and the debt side won't.  The best model is to run a levered long hedge fund.  2/20 is based on NOMINAL returns.  If the market goes up 1000% a year due to Weimar-ization then the richest people in the world will be the heads of the big hedge funds and they will have 10x more money then a Bill Gates.  And the worst investment in this scenario is Debt.  The RECORD LOW levels of interest rates on UST indicates a lot of people don't think inflation is the key concern right now.

Record low yeilds in UST/Bunds, the dramatic sell off in European and Emerging equities, Greece's coming bankrupcy and the bank runs in every Mediterranean country indicate we are headed for DEFLATION.  Deflation is VERY bad for PMs.  Its also bad for stocks and people who owe money.  The best investment in this scenario is to be a lender in VERY high quality debt that gets paid back.  Actually the best investment is TZA, SMDD, FAZ etc...


However a replay of the Great Dr

Thu, 05/24/2012 - 15:22 | 2459887 DoChenRollingBearing
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Gold was one of the BEST performers in the deflation of the 1930s Great Depression.

Thu, 05/24/2012 - 18:52 | 2460604 blunderdog
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   If you own gold you have to realize you are betting on INFLATION.  You are betting that central banks will continue debasing their currencies rather then accepting defaults, reorganization and deflation.

So what's wrong with that? 

   The RECORD LOW levels of interest rates on UST indicates a lot of people don't think inflation is the key concern right now.

Uh, no.  That conclusion is not warranted.  It COULD mean "a lot" of people aren't worried about inflation, that's a POSSIBLE interpretation.  I think it's a real stretch of imagination.

It could instead mean that bond buyers have access to effectively unlimited amounts of money and are concerned that the banking system is at risk of collapse without guaranteed government intervention and backstopping. 

And by "bond buyers" I refer to banks.

Fri, 05/25/2012 - 00:58 | 2461358 Burnbright
Burnbright's picture

Gold and Silver go up in periods of economic uncertainty. The reason Gold and silver will continue to increase in value is because bureaucrats control the ebb and flow of capital in the economy. People are uncertain about future taxes, liabilities, and restrictions burdening businesses. 

The more the government tries to bleed people dry and break laws in favor of corporate interests the more ordinary people will go to the one thing that is the Achilles heel of all governments today, and that is without a doubt using real money over fiat paper. 

So really it isn't that "gold bugs" see gold and silver going up in all situations. If the rule of law existed even remotely then Gold and silver would tank. The problem is I do not see things ending well no matter what happens because of WHO is in control and what they are doing. 


Your problem with understanding the reasons for owning gold and what to react to in terms of inflation and deflation are all in your understanding of money. You can not apply supply and demand logic to economies running on fiat currency and capital controls being enforced. It simply does not operate the same way.

Thu, 05/31/2012 - 20:33 | 2481876 MeelionDollerBogus
MeelionDollerBogus's picture

Gold is insurance, not a bet. Gold is a store of value more than any investment.

Got positive interest rates? Got positive rates exceeding the rate of inflation today? Got positive rates, above inflation and no printing of money? If yes SELL GOLD, hold income-yielding assets measured in the fiat currency/ies of choice, if NO buy GOLD.

It's that simple.

Thu, 05/24/2012 - 15:21 | 2459883 Ricky Bobby
Ricky Bobby's picture

"Max Fischer" such an appropriate Bolshevik name.

Thu, 05/24/2012 - 16:05 | 2460021 Fukushima Sam
Fukushima Sam's picture

Hot digital money, dude.  Hot digital money...

Thu, 05/24/2012 - 21:56 | 2461058 NoClueSneaker
NoClueSneaker's picture

Hmmm, me has no clue, but I think u'd like to suck sum cocks.

So, bite me gently, I'll pretend yo my femme fatale ....


* 2K, respectivly 60-70$ /Oz. in 3... 2... 1...

Sat, 05/26/2012 - 09:59 | 2465089 MeelionDollerBogus
MeelionDollerBogus's picture

Gold has to hold under 800 for more than 12 months solid to be in a bear market. Not happening. Every gold price above 1300 is FIRMLY bull-market. 1560 is a fairly hefty price for gold and 1900 was early but is easily happening again.

End-2012 target for gold is 2400 to 2700 / oz based on the math, ROC forward-rolling for 277-week, 52-week & also looking at the exponential trend curve for all the lowest prices of each year for the last 10 years in gold.

Your nonsense is flatly still nonsense. And not nearly as funny as MillionFecesBonus.

Thu, 05/24/2012 - 13:52 | 2459494 barliman
barliman's picture


Chill the fuck out!

The French and the Italians have GOT this ....


Waiting for an article on the spill over effect of European bank runs onto the Feds currency swaps.


Thu, 05/24/2012 - 14:03 | 2459540 BeetleBailey
BeetleBailey's picture am I barliman.

Spot on.

The Greeks are one thing.

The French and Italians? The shit's gonna get really real.

Thu, 05/24/2012 - 14:05 | 2459547 SheepDog-One
SheepDog-One's picture

'Overnite run on the banks' was how it all started in 2008.

Thu, 05/24/2012 - 15:23 | 2459892 DoChenRollingBearing
DoChenRollingBearing's picture

Bank runs: start early and often!

Thu, 05/24/2012 - 17:57 | 2460422 Overflow-admin
Overflow-admin's picture

Actually I just took out 700CHF, just to have some cash in case of 'overnite' or 'deelight' bank runs... Not much but does that count? I do it pretty often ^^

Thu, 05/24/2012 - 13:53 | 2459497 vast-dom
vast-dom's picture

bank runs are irrelevant since banks are no longer in the banking business; rather, they  are the instruments of central planning and vice-versa.

Thu, 05/24/2012 - 13:55 | 2459508 SilverTree
SilverTree's picture

Bank runs are a true hint to the sentiment of the people "on-the-ground".

Thu, 05/24/2012 - 13:58 | 2459518 SilverTree
SilverTree's picture

Why the junk?


My point is that bank runs are NOT irrelevant.

Thu, 05/24/2012 - 14:06 | 2459542 Paul Atreides
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Seeing multi junkers just run down the comments last couple days, it's like a kid pressing all the red buttons on the elevator childish...

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