tag:blogger.com,1999:blog-8764541874043694159.post3069956675628198861..comments2024-03-29T09:34:18.837+00:00Comments on Coppola Comment: The monsters of SpainFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-8764541874043694159.post-77793392246262202152012-06-24T20:30:12.782+01:002012-06-24T20:30:12.782+01:00That's probably the best explanation of the Ta...That's probably the best explanation of the Target2 confusion I have ever read. Kudos.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63091292348314081732012-06-23T14:32:32.795+01:002012-06-23T14:32:32.795+01:00I think the real answer is that large banks tend t...I think the real answer is that large banks tend to be economically and systemically important in a way that smaller banks aren't. They are often crucial to payments systems, for example, and to liquidity for individuals and businesses. They also frequently have external links - as we saw in the 2008 financial crisis: they are much more likely to use international sources of funding and their shares and bonds are traded on the international markets. Part of the reason for the caja consolidation and the associated change in their legal status (from mutuals to commercial banks, essentially) was to allow them to raise finance on the international capital markets. This improves their liquidity but it also increases their systemic risk.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-79860919089626148122012-06-23T13:41:49.925+01:002012-06-23T13:41:49.925+01:00Thanks for the reply. I understand that there is e...Thanks for the reply. I understand that there is empirical evidence that size matters but I am struggling to understand why 20 banks with 100million in bad debts is worse than one bank with 2billion in bad debts. Particularly if they all go under with the same eventAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-10514593487900764632012-06-23T11:50:53.839+01:002012-06-23T11:50:53.839+01:00There are huge misunderstandings about Target2. Ta...There are huge misunderstandings about Target2. Target2 would be an issue if the Euro itself broke up, because it depends fundamentally on the ECB. Individual country exit could be managed, I think. In theory Target2 could survive a collapse of the banking system, since it operates through central banks. But as a banking system collapse would almost certainly bring down the Euro itself it is a bit of an academic question.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-12584424103829506772012-06-23T10:36:57.269+01:002012-06-23T10:36:57.269+01:00I think that puts it all together. This one is up ...I think that puts it all together. This one is up there with the cold hard truth post, all the better without graphs! I suppose you econ/finance jobbers cant do without :-)<br /><br />How will it end? badly, 2 thoughts.<br /><br />Spain (like Italy) is a large country with a large economy, history and culture, they wont be push around and in the end they will act in their own national interest, as Italy is showing signs!<br /><br />And as said the EUro is an ideological tool and its believers will sell their children first before abandoning it.<br /><br />Am I right in saying Target2 only comes into play on a break up of the banking system?Seanhttps://www.blogger.com/profile/04362169593902131947noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-28931330620546077882012-06-22T20:12:56.827+01:002012-06-22T20:12:56.827+01:00Good article, there's worrying parallels with ...Good article, there's worrying parallels with Ireland here in that the senior bosses of Anglo Irish and Irish Nationwide had very close links with Fianna Fail and that may have been a reason behind the disastrous blanket garuantee that eventually led to the bail out. It could well be that there's more shocks to come out of Bankia and the other cajas and that could be the proverbial straw :(The Oncoming Stormnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-89112493223826281912012-06-22T12:34:57.490+01:002012-06-22T12:34:57.490+01:00Size does matter. A small bank is unlikely to be c...Size does matter. A small bank is unlikely to be critical to the national economy. In the US, hundreds of small banks failed in the 2008 crisis - but we don't hear about those, do we? That's because it wasn't their failure that caused the US economy to crash and sent shockwaves around the world. It was the failure of larger banks. The fact is that the failure of a single large bank can overwhelm the sovereign and cause major dislocation of national and international financial systems. Even twenty small regional banks wouldn't have that sort of effect.Frances Coppolanoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-3026075674248156592012-06-22T11:06:05.385+01:002012-06-22T11:06:05.385+01:00Very nice article !
One thing of note, France has...Very nice article !<br /><br />One thing of note, France has been spared on the real estate front. But there's a huge bubble there. From 2000 to 2012 prices have gone up by 140%. People have gotten indebted for 25-30 years to buy a home, just like in Spain.<br /><br />Right now, there is still no sign of a reversal, but the french banks are still ill prepared for this.lionelhttp://www.investir-blog.comnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-58789764201926338282012-06-22T10:57:30.053+01:002012-06-22T10:57:30.053+01:00Hi Frances
Great article but I'm still a bit m...Hi Frances<br />Great article but I'm still a bit mystified why size in this case matters. Surely 20 little banks all failing (with corresponding loses for investors) is much the same as those 20 little banks all being merged into one big bank and failing (with similar losses for investors). <br /><br />As far as I can tell the policy hasn't been so much bad as pointless. There was a systemic problem with spanish banking which mergers were never going to work around. However the mergers didn't create the systemic problem which was always going to lead to investors losing their shirts and government having to do some sort of bailout (even if only on personal bank accounts). <br /><br />Would be grateful for your thoughts?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-73233444479385167072012-06-22T08:54:41.188+01:002012-06-22T08:54:41.188+01:00Indeed I do, and I have a lot of time for MMT. It ...Indeed I do, and I have a lot of time for MMT. It is the only economic theory that doesn't rely on a faulty understanding of how money transmission works.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-63720327423849282182012-06-22T08:45:21.510+01:002012-06-22T08:45:21.510+01:00Excellent article as usual.
Do you read or follow ...Excellent article as usual.<br />Do you read or follow Bill Michell? http://bilbo.economicoutlook.net/blog/<br />One of the best economic commentaries I can find. I would be interested in reading your views on his MMT analysis.<br />KeithAnonymousnoreply@blogger.com