Crisis

James Mackintosh

The draft structure for Spain’s rescue of its banking system suggests a big chunk of the cost will be borne by private investors, through losses on equity and subordinated debt.

Unfortunately, this will hurt the ailing economy even more, and ultimately only save money for Spain’s eurozone partners. The bad news for banks (and good news for taxpayers and efficient resource allocation) is that it also sets a new standard for future bailouts, over-riding the local political desire to save creditors. Worse news for banks could be to come, as the logical next step is for the eurozone bail-out fund to establish rules demanding losses for senior bondholders in future bank rescues.

Charts after the break showing Spain and what looks like the mispricing of bank CDS. Read more

James Mackintosh

The new blog challenge: put these in order of how awful they’ve been since the euro was created:

  • Greek banks
  • Irish banks
  • Spanish banks
  • Italian banks
  • French banks
  • British banks
  • German banks
  • American banks

It is a serious challenge, given how much everyone hates all the banks. But if forced to choose, the order might reasonably go something like the above – the periphery, in order of rescue, middling eurozone, then the Brits (many of them already nationalised, plus the Libor-struck Barclays), followed by under-capitalised Germans and finally the resurgent Americans as the best of a bad bunch.

Equity investors don’t seem to share this view, as this great chart shows. Read more