No one — not investors, not regulators, not even bankers themselves — knows exactly which banks are sitting on the worst of Europe's $2.6 trillion in non-performing loans.
“The marketplace knows very little about where the real risks are parked,” Nicolas Véron, an economist at Bruegel, a research organization in Brussels, told The New York Times.
“That is exactly the problem. As long as there is no semblance of clarity, trust will not return to the banking system.”
Though most large, publicly listed banks have provided information about the extent of their exposure, the hundreds of smaller mortgage lenders, state-owned banks and thrift institutions that dominate banking in some European countries have not made their bad debt obligations public.
The European Central Bank estimates that the Continent’s largest banks will book 123 billion euros ($150 billion) for bad loans this year and an additional 105 billion euros next year, though the sums will be partly offset by gains in other holdings.
“We estimate there is around €2 trillion of debt issued by public and private sector institutions from Greece, Spain and Portugal held by financial institutions outside of these countries,” analysts from the Royal Bank of Scotland write in a report.
“This is the equivalent of 22 percent of euro area GDP and is well above most widely quoted estimates.”
“The size of financial institutions’ exposure to these three countries argues in favor of intervention so as to avoid a repeat of a complete collapse in confidence.”
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