THIS COULD SINK BANKS IN GREECE, PORTUGAL, SPAIN, AND ITALY | WHAT REALLY HAPPENED

THIS COULD SINK BANKS IN GREECE, PORTUGAL, SPAIN, AND ITALY

The European Commission is now contemplating pulling the rug out from under the banking miracles in Spain, Portugal, Greece, and Italy.

In total, there are €40 billion in deferred tax assets dressed up as core capital in the banks of these four countries. That’s how precarious these banks are. At one unnamed bank in Greece, these deferred tax assets account for 30% to 40% of its core capital. Without Greece’s special state guarantee, these deferred tax assets could not be part of the core capital, and without this additional “capital,” the bank would be toast.

But on paper, these crummy sorts of assets do a nice job of propping up these banks. And that’s why these four countries have bent over backwards to make it happen. Why bail out rotten banks with real money when fake assets can accomplish the same?

But it’s these state guarantees that are now in the cross hairs of the European Commission’s competition authorities as illegal state aid to banks that are supposed to compete fairly on level ground with banks in other countries.

Webmaster's Commentary: 

More taxpayer bailouts coming in Europe in the not too distant future, I see.

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