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Behind The Scenes, European Banks Freak Out About Lending To Each Other

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Thursday, May 6, 2010

Right now, markets are getting hammered as protests rock Athens and no one trusts Greece to get out of this crisis.

Behind the scenes, banks are starting to question each other on their exposures to Greek sovereign debt. Its why BNP Paribas and Societe Generale mentioned it in their recent earnings calls.

No bank wants to lend to another that may be too exposed to Greece, or any of the other PIIGS that are now starting to feel the default threat.

Banks trust sovereign debt. They use it as the risk free rate to value other more risky assets and that may need to change, according to The Economist. When stark changes start to occur in debt markets, banks may have serious problems with their valuation techniques. Which may make them worry about their assets and other banks.

Banks which hold lots of contagion threat debt will have trouble finding lenders right now. And with that information less than public, trust will be a serious problem.

Check out the countries at the center of the contagion threat >

This article was posted: Thursday, May 6, 2010 at 1:48 pm

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