October 29, 2013

Europe, who should define what the non-core assets of your banks are? Regulators, or the needs of your real economy?

Sir, Sam Fleming reports that Richard Thompson, a partner of PwC, estimates that “European banks were sitting on €2.4tn of non-core loans that they plan to wind down or sell off.” “Troubled loans at Europe’s banks double in value”, October 29.

I tell you Sir, that should scare the shit out of Europe… because you can bet that the loans to be wind-downed or sold off, are just those for which bank regulators require the banks to have more capital; and which is something that has nothing to do whatsoever with how much the real European economy needs those loans.

ECB’s asset quality review will take place but, unfortunately, it will not even try to identify all the good opportunities for job creation for the European youth that should have had appear on European bank’s balances, but do not. And this only because regulators allow banks to earn much higher expected risk adjusted returns on equity when lending to “The Infallible” sovereigns, housing and AAAristocracy, than when lending to “The Risky” medium and small businesses, entrepreneurs and start-ups.