Photo: Stringer / AFP
Amazing how these things happen: On the same day that a bond auction flops in Germany, there’s a growing buzz about Germany’s own underwhelming fiscal position.It’s not so much about Germany’s deficit per se, but the obligations of its banks.
This note came from Chris Becker at Tradition…
UK and US banks are well capitalised owing to the rounds of quantitative easing in recent years, as well as TARP in the US and bank nationalisations in the UK. It was the collapse of bank credit in these two countries that led to bank recapitalisations, sending public debts soaring and annual deficits into the stratosphere. These countries still run annual deficits in the region of 10% of GDP while Germany is in the region of 3%. UK public debt as a per cent of GDP is around 70%, while US public debt to GDP is at 95%. Germany’s public debt was estimated around 83% of GDP at end-2010. This is higher than Spain and is in line with public debts of France. However, Germany has not yet
been through a full-scale bank recapitalisation.
According to Bundesbank data, German monetary financial institution (MFIs) assets are equal to 152% of GDP. Deutsche Bank is the biggest player in the German banking space, accounting for 61% of total bank assets in the country. Deutsche Bank’s assets are equal to 93% of annual GDP. Commerzbank, Landesbank, and DZ Bank make up the bulk of the rest.
Moody’s issued a report last week on German banks, citing downside credit risks. Referring to a Bundesbank financial stability report, Moody’s noted sizeable exposures of German banks to borrowers in stressed Euro area countries and high reliance on wholesale funding. “We agree with the Bundesbank’s assessment that risks for the German financial system have increased significantly,” said Moody’s.