Unfortunately, when we posted this chart showing European bank loan-to-deposit ratios we were about 10 months ahead [2]of the "deposit impairment to grow into non-bad loan assets" curve. Now that Cyprus over the past week, and DieselBOOM in the past hour, has reminded everyone just how critical it is to not be a soon to be impaired uninsured depositor in any European bank encumbered with a massive loan burden, where one "resolution" may (and will) be depositor impairment, it is time to bring this back up front and quite personal. Because when the next insolvent European bank is revealed to be, gasp, insolvent, it just may have saved your money in retrospect.
Because remember what Dijsselbloem just said: "countries with large banking sectors must look to restructure, reduce overall size" in other words a forced, and definitely not beautiful deleveraging. And since he wasn't kidding, the full impact of "renormalization" would mean about the $5 trillion in additional deleveraging that was put on the backburner when Basel III ratios were made into a total mockery.
[3]
And this is what we said 10 months ago: it is as applicable now as it was then [4]:
The chart [above] explains why not only is Europe's several asset constrained, it is also running out of funding, in the form of depositor cash: the most critical bank liability. Remember: without incremental deposits, banks can not invest in new assets, unless they generate cash from operations, and thus grow shareholder equity. There is a problem: as the final chart below shows, Europe, and especially Scandinavia which has consistently remained off the radar, is literally off the charts when it comes to LTD ratios.
With banks such as Danske, SHB, Swebank, DnB, and Nordea literally at 200% Loan-to-Deposits, but most other European banks too, even the tiniest outflow in deposit cash (ala what is happening in the PIIGS) will send the system into yet another liquidity spasm.