Even as the Spanish (and Italian) sovereign bond market foundered in July, hitting record yields following stark realizations just how insolvent Spain is, a more sinister development was taking place: Spanish banks, completely disconnected from the funding needs of the sovereign, were receiving a daily bailout from the ECB to the tune of over €1 billion. As the Bank of Spain released hours ago [6], in July Spanish banks borrowed a record €375.5 billion from the ECB, a new record, and a €38 billion increase from June. Sadly, as the red line in the chart below demonstrates, the parabolic increase in Spanish bank borrowings from what is effectively Germany, continues unabated. Indicatively this is comparable to the US banking system obtaining a roughly $500 billion rescue in one month for the 8th month running. Year to date, Spain has received €257 billion in ECB "borrowings" which we put in quotes as this money will obviously never be repaid, which means simply that Europe continues to be entrenched in the most diabolical version of Stockholm syndrome, where the hostages and the kidnappers have now realized they can only exist as long as the other is alive. If there was any good news, it is out of Italy, whose ECB bank borrowings [7]rose by "only" €2 billion in July to €283 billion, and leaving Spain far ahead in the direct borrowing insolvency race. Of course, this was offset by the far more complicated ponzi scheme where banks can and continue to issue government-backed bonds. In fact, as reported yesterday, Italian sovereign debt rose to a new all time high. Because at the end of the day remember: sovereign or financial debt - it doesn't really matter in Europe, an asset-starved continent where the two terms are now effectively synonymous, and where the law of fungible funding and communicating vessels in the context of debt has never been more in your face.
Spain and Italy relative funding needs:
[8]
And cumulative:
[9]