The weekend news highlighted by Eamonn has seen the Bank of Portugal come to the rescue of Banco Espirito Santo.
The speed at which they moved to their “last resort” option of using the bank recap fund is quite worrying on its own, but given the problems they keep finding hidden away in the accounts it looks like they’ve been forced into action.
On the face of it this should be good news for the banking system as the central bank has stepped in to split the bank and the bad eggs. A big plus is that depositors have been guaranteed. The problem is that in this one issue they’ve had to use a fair old chunk of the total €6.4bn of funds they had set aside. For one it doesn’t leave much left for any other problems that may arise.
So is this good or bad for the European banking system or the euro?
Happening as it did over the weekend may negate any negative knee jerk reaction today. The euro hasn’t moved but it may when Europe opens up in full and if stocks take a slide at the open.
The market may also catch some jitters over the fact that yet again a large bank has been hiding some massive problems and so they may think that there’s a greater risk of some potential time bombs when the AQR and stress tests are run by the ECB in a few weeks. If the market goes into fear mode then that’s likely to keep the pressure on the euro over the next few weeks and months.
What this does highlight is how quickly problems in the banking world can happen and spiral into a very big mess. It also highlights that after all this time of European bigwigs telling us that they are fixing the problem they seem to have just as much control of the situation as they did before, i.e none.
The stress tests should minimise these problems going forward but the Portuguese problem has shown that there’s a long way to go yet.
Keep an eye on the open in Europe for a clue of how the market is going to take this news.