With the threat of sovereign default and contagion now pervasive within the Eurozone periphery, it is relevant to quantify the relative exposure of various banking centers' assets as a percentage of host countries' total GDP. The reason for this is that in Europe for many countries a sovereign default would not have as great an impact, as a risk-flaring contagion impacting these countries' primary financial entities, whose assets account in some cases for multiples of host GDP. For example in Switzerland, the assets of the top two banks, UBS and Credit Suisse, alone account for nearly 600% of the country's GDP. And while Switzerland is relatively isolated from the budget and deficit crises in the PIIGS and STUPIDs, other countries such as Italy, Belgium and ultimately France, Germany and the UK, are much more exposed.
- Belgium - Dexia: 180%of GDP
- France - BNP Paribas, Credit Agricole, SocGen: 237% of GDP
- Germany - Deutsche Bank: 84%
- Italy - Unicredit, Intesa Sanpaolo: 101%
- Netherlands - Fortis: 155%
- Spain - Banco Santander: 92%
- UK - RBS, Barclays, HSBC: 337%
Compare that to the top 5 banks in the US (a list which excludes hedge funds such as Goldman Sachs).
- US - JP Morgan, Citigroup, Bank of America, Wells Fargo and Fannie: just 56% of GDP.
The question which pundits should be focusing on is once the Greek crisis flares up and takes down several peripheral non-hosted banks, just what the interplay of a "falling domino" scenario will be not only on neighboring European countries, but also on the holdings of their domestic banks. Because it is inevitable that the same kind of bank run witness in Greece, will become a pervasive phenomenon and impact Portugal, Spain, Italy, etc, which would be the precursor to a global bank run.
The chart below demonstrates graphically the ratio between a given bank's asset and the GDP of its host country. Unfortunately for Europe, there is a dramatic concentration of bank assets precisely in some of the most precarious regions. Which is why Germany may have kicked the can down the road for at least a month, but the issue will come back with a vengeance for the simple reason we have noted from the start of this crisis: only Bernanke has a money printer. Everyone else actually has to produce "stuff", sell it and collect taxes if they want to fill catastrophic budget deficits. And the latter, as we have seen, is something the developed world has been horrible at doing over the past decade, courtesy of the Goldman-facilitated innovation explosion.