by Mish

Let’s start with a look at equity in FGDR, the French guarantee company vs. the amount of deposits according to ECB stats.

The above chart from page 25 of the FGDR Deposit Guarantee 2014 annual report.

The mechanism has about €3.13 billion equity as of December 2014.

French and Italian Bank Deposits

French bank deposits total €4,068 billion as of December 2015 according to the ECB Euro Residents Deposit Report.

Not all of those deposits are covered by insurance. The guarantee is limited to the first €100,000.

Look at things this way: €3.13 billion would cover a mere 31,000 accounts of €100,000 each.

From the same report above, Italy has €2,395 in deposits.

Italy’s Guarantees

No doubt, you are now wondering how big Italy’s guarantee fund is.

So am I.


In fact I wonder if Italy and nine other eurozone contries have them at all, or if they do, what shape those deposit guarantee funds are in.

10 Eurozone Countries Cited for Noncompliance on Deposit Guarantees

Please consider this December 2015 European Commission Press Release on Deposit Schemes.

The European Commission has formally requested Belgium, Cyprus, Estonia, Greece, Italy, Luxembourg, Poland, Romania, Slovenia and Sweden to fully implement the Deposit Guarantee Schemes Directive (DGSD).
The European Commission has formally requested Belgium, Cyprus, Estonia, Greece, Italy, Luxembourg, Poland, Romania, Slovenia andSweden to fully implement the Deposit Guarantee Schemes‘ Directive (Directive 2014/49/EU, DGSD). This Directive, which builds upon the previous Directive 94/19/EC of 1994, improves the protection of deposits. Depositors will benefit from quicker pay-outs and a stronger safety net as more unified funding requirements will ensure that deposit guarantee schemes are pre-funded and will be able to fulfil their obligations towards depositors more efficiently. It is a step towards a fully-fledged Banking Union to create a safer and sounder financial sector in the wake of the financial crisis.
The deadline for transposing these rules into national law was 3 July 2015 (see MEMO/13/1176). However, 10 EU countries have failed to implement these rules into their national law. The Commission’s request takes the form of a reasoned opinion. If these Member States fail to comply within two months, the Commission may decide to refer them to the Court of Justice of the EU.

Italy Bank Bailout Coming Up?

Leaving the issue of deposit guarantees aside, some of which obviously exist in name only, recall that Italian banks have about €200 billion in nonperforming loans.

Italy and the ECB would like nothing more than to sweep those loans under the rug.

Thus, it should be no surprise to discover ECB in Talks with Italy Over Buying Bundles of Bad Loans.

The European Central Bank is in talks with the Italian government about buying bundles of bad loans as part of its asset-purchase program and accepting them as collateral from banks in return for cash, the Italian Treasury said.
Nonetheless, it would likely fuel a debate in other countries about whether the ECB is taking on too much risk by buying asset-backed securities (ABS) based on loans that have not been repaid for roughly three months.
Italian Treasury officials told reporters the ECB may buy these securities as part of its 1.5 trillion euros asset-purchase program or accept them as collateral from banks in return for cash, in so called repurchase agreements.
The ECB declined to comment.
In November last year, an ECB source said that buying rebundled non-performing loans could be an extreme option if the euro zone’s economic situation became “really bad”.

Are things “Really Bad” Enough?

I am quite certain things are far worse than anyone is willing to admit.

Mike “Mish” Shedlock

EU Deposit Insurance, a Bank Crisis in Italy and Greece, and the Coming Ban on Cash

Last week we investigated nonperforming EU loans and an EU proposal to freeze accounts if a run on a bank starts.

California USA vs. Ontario Canada – Which State (Province) Is In Worse Shape? Canadian Banks vs. US

Inquiring minds are interested in a comparison between the state of California and Ontario, a province of Canada. “Firefiend” Writes:

It’s Your Money But You Can’t Have It: EU Proposes Account Freezes to Halt Bank Runs

If there is a run on the bank, any bank in the EU, you better be among the first to get your money out.

European Banking System on Verge of Collapse; Market Votes “No Confidence” in Italian Bank Rescue

European bank shares are down for the second day following a last minute bailout package aimed at Italian banks one day before a stress test showed Monte dei Paschi would be insolvent in an adverse scenario.

U.S. Deposit Drain Coming Up? Merge Before It’s Too Late?

J.P. Morgan is offering regional banks some interesting advice: Partner Up as U.S. Deposit Drain Looms.

Run on Italy’s Third Largest Bank? Capital Controls or Bail-Ins Next? Why Take Chances?

Italian Bank Customers Pull Deposits. The CEO of Monte dei Paschi, Italy’s third largest bank, and the oldest surviving bank in the world, admits Customers Pulling Deposits as share prices sink.

Two Italian Banks Fail: Bail-In Rules Changed to Protect ECB and Political Class from Losses?

On Friday the ECB Shut Down Venice-based Veneto Banca and Banca Popolare di Vicenza as failed or failing banks.

Danish and Swiss Banks to Charge Customers 0.75% Interest on Large Deposits

Last week, Denmark’s central bank cut its deposit rate to -0.75%. Banks will pass this on to large customers.

Eight Italian Banks to Fail: Renzi Seeks Scapegoat

The Financial Times says “Up to eight lenders risk being wound up if No vote triggers prolonged market mayhem”.