Europe banks are the ones now facing scrutiny before investors, companies and savers will lend them any cash. Faced with an investor strike, banks are putting a halt to new loans and selling or pawning all they can. Unless the investor strike lifts soon, Europe risks a credit crunch. At worst, there may even be bank runs and failures. For now, this is keeping the system ticking over, partly because a bank lending money overnight knows it may have to ask for the favour to be returned next week. Euro-area central banks are also leaning heavily on their biggest banks to keep supporting the smallest with interbank loans.
Monday, December 5, 2011
The Dash for Cash
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If consumer confidence continues to shrivel up, perhaps "capital injections" to firms could become necessary again. However it seems the worst is over for European markets.
ReplyDeleteThis might lead to situations where there might be too big too fail banks...
ReplyDeleteThis creates moral hazards and leads us to bad unchangeable consequences in the future