Time for another bank deposit update for the month of April 2013.
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| Chart 1: Bank Deposits |
Latest data shows no deposit flight yet in February 2013. Greece did decline together with Portugal, Ireland and Cyprus. But Italy and Spain had deposit increases.
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| Chart 1: Deposits Eurozone |
Following the crisis in Cyprus of which I talked about here, there has been a question on how much stress the banks can have during a bank run, before their liquidity is at stake.
A typical bank balance sheet looks like this (Figure 1). If the deposits get drained on the right side, the cash gets drained on the left side. The question is, how high is the limit of a drain on deposits?
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| Figure 1: Balance Sheet |
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| Chart 1: Reserve Requirements |
Then we look at the capital and reserves of the banks. The capital and reserves are given in the last column (Table 1).
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| Table 1: Bank Statistics |
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| Chart 2: Capital and Reserves to Deposit Ratio |
Go here to read more.
Now that everyone is scared of the bank runs, it is necessary to monitor the deposits at the peripheral countries.
I compiled the data for the most important countries to watch, namely, the PIIGS. And of course Cyprus.
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| Chart 1: Total Deposits of Peripheral Eurozone Countries |
If Cyprus falls, let’s see what will happen to the PIIGS. Probably they will fall too.
I will give a monthly update on this.
I challenge you: do you see a correlation here between deposits and something else?
Yes, it’s the ECB’s LTRO lending to banks (Chart 2). The country that gets the most LTRO will have the most deposits on their banks. That’s because most of the deposits just stay on the balance sheets of the banks. Normally loans should go up, but that’s not the case anymore since 2008. The deposit to loan ratio is going up (Chart 3).
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| Chart 2: ECB Lending to Banks |
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| Chart 3: Deposit to Loan Ratio U.S. Banks |
If all people take their money out of the bank, we get a bank run. Result is that the loans will disappear and go bad. We get an entire collapse in the financial system. So I expect to see LTRO coming back soon as Chart 1 tells us that deposits are again decreasing.
On 15 March 2013, Cyprus said it will impose a levy of 6.75% on deposits of less than 100,000 euros and 9.9% above that. The measure will raise 5.8 billion euros ($7.5 billion), which implies that we have about 68 billion euro ($85 billion) in deposits in the Cypriot banks. What this means is that each depositor in a Cypriot bank will get a haircut on their savings. This event is actually a very important one in history as it marks the first time that depositors actually lose their money, despite the presence of a deposit insurance. Of course, you can’t have deposit insurance without a bailout of the banking system by the IMF. But to have this bailout, depositors need to have a cut (imposed by the IMF). It’s sort of a paradox: “from now on deposit insurance is not insured anymore”.
Many people think that their deposits are safe when they put their cash in the bank, but they either lose it to inflation or in this case lose it to the government. The result is that investors lose confidence in the banking system and will go to assets like precious metals which don’t have counterparty risk.
To read more go here.
When roaming the precious metals forums, I found out that Brazil doubled its gold holdings in two months time (added 17.2 tonnes in October 2012 and 14.7 tonnes in November 2012. Total holdings now 67.2 tonnes), I just wanted to see if central bank gold buying correlated with the gold price.
Keep reading about this analysis here.
Bloomberg reported on 20 August 2012 that banks are stepping up their U.S. treasury buying. As deposits increased 3.3% to $US 8.88 trillion in the two months ended July 31 2012, business lending rose 0.7% to $US 7.11 trillion, Federal Reserve data show. This inherently means that banks aren’t lending money to the private sector, but are lending their money to the U.S. government. Peter Schiff pointed this out on the Peter Schiff Show of 20 August 2012. Banks bought $US 136.4 billion in bonds (TLT) already this year, pushing their holdings to $US 1.84 trillion.
Let’s take a snapshot of the debt maturities in 2011 and 2012 and quickly compare them (Chart 1 and Chart 2: U.S. treasury debt by Year of Maturity (2012) ) (I talked about debt maturities in this article).
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| Chart 1: U.S. treasury debt by Year of Maturity (2011) |
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| Chart 3: 10 year U.S. treasury yield |
You can immediately see that short term debt has doubled in 1 year time. The biggest buyers of these treasuries were the federal reserve, domestic investors, banks, emerging markets like Japan and China. It’s no wonder that bond yields have gone down with all this buying of U.S. treasuries. But these yields have started to rise sharply just recently, topping 1.85% for the 10 year U.S. treasuries (Chart 3).
If you want to know what impact this will have on the banks, go read the full version of this article.
In the news of today, Spain has been in the center spot of attention. Spanish bond yields have been rising quickly and financials have seen weakness in their share price. In this article I want to see which banks have the most exposure to Spain and to the PIIGS in general.
Correlation Economics (Backup) 