Tuesday, November 8, 2011

Liquidity crisis in the making

Bank of Canada governor Mark Carney, warned on Tuesday that the world was “on the cusp of another retrenchment” in liquidity, and urged careful management of European bank recapitalization to limit the effects (Financial Post, 11/09/11).

 As the new head of the FSB (Financial Stability Board) Carney carries lots a weight (he did before he got that gig too).  He also announce the name of the 29 institution that were systemically too big to fail -- these institution will be required to keep additional capital at hand.  if you consider that among them are all the major German and French banks (leveraged to the tune of 60:1) and the big four Americans (Leveraged at 12:1) you get a feeling that the "recapitalization" effort will require the support of governments.

I'm not making any predictions, but my instinct tell me that as an investor it would be wise to steer clear of European banks -- ROE is about to drop! 

 [no position on any American or European banks]


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