And The Countdown To A Euro Bank Bailout Begins…

Soc Gen CEO Frederic Oudea

As the Eurozone sovereign debt crisis charges on without a clear solution, talk of bailouts for some Euro banks has gotten more serious recently.Many Euro banks would not survive if their sovereign assets were marked to market value.

To address that imminent crisis, and the fragile state of the global economy, the Group of Seven finance chiefs and central bankers laid out their plans to ensure stability over the weekend.

They said in a statement:

There are now clear signs of a slowdown in global growth. We are committed to a strong and coordinated international response to these challenges… Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth. We must all set out and implement ambitious and growth-friendly fiscal consolidation plans rooted within credible fiscal frameworks.

The central bankers have already taken some measures to ensure the stability of the financial sector. Unlimited loans from the European Central Bank are keeping many banks in Greece, Portugal, Italy and Spain solvent. It sounds like that will continue, and perhaps be expanded into a more formal bailout package if need be.

The G7 said in the statement:

Central Banks stand ready to provide liquidity to banks as required. We will take all necessary actions to ensure the resilience of banking systems and financial markets. In this context we reaffirm our commitment to implement fully Basel III.

Russell Jones, head of fixed income strategy at Westpac

Russell Jones, the head of Fixed Income strategy at Westpac, Australia’s second biggest lender, explained the Euro banking crisis in a TV interview:”A lot of the European banks had a lot of the government bonds which have been issued by some of the more, shall we say, struggling economies around the periphery of the euro zone… They are not going to get all of the money back [in the event of defaults].”

“[A European banking collapse is] the sort of shock to the system when things are very fragile, as they are at the moment, that could really push us back into the sort of downturn we experienced in 2008 and 2009. [Nationalization is possible,] at least temporarily so.”

Another sign of the Euro banking crisis is that Moody’s might downgrade French banks Soc Gen, Credit Agricole and BNP Paribas soon. The banks were said to be “preparing” for an imminent downgrade. Right now, they’re all assigned high credit worthiness, though many argue they don’t deserve it.