Which banks are taking the biggest hits from the eurozone crisis?
Two-thirds of the eurozone’s banks are in financial trouble and are likely to face a fresh wave of bad loans in the coming months.
The ECB has said the crisis has triggered an unprecedented wave of lending that could make the region’s banks even worse off, leaving the eurozone vulnerable to a further collapse.
The ECB’s latest forecast is that banks in the eurozone could suffer losses of €1.8 trillion (£1.7 trillion) by the end of the year if the euro zone’s economic crisis continues.
The German central bank, which has been among the strongest proponents of stimulus in the region, has already forecast losses of more than €1 trillion over the next year.
In its latest forecasts, the ECB said it was not yet certain whether it would continue to take on more loans, but it said it would need to.
“We are in an unprecedented situation,” the ECB’s chief economist, Klaus-Dieter Poesler, said at a press conference.
“We are entering uncharted territory.”
Mr Poesling said the ECB was concerned about the “risk that banks and the banking sector could be subject to a repeat of the 2008 crisis” and had to make a “firm decision on whether to continue to lend”.
The European Central Bank’s (ECB) decision to extend the loan guarantee to banks, which the ECB had previously promised would end at the end by the year, came as it tried to contain the damage.
It is also likely to spark a fresh bout of borrowing by the banks, who have been in a state of financial crisis since the start of the crisis in 2009.
Bank credit to the eurozone has fallen from more than $10 trillion in 2009 to less than $4 trillion now.
The ECB has not yet confirmed how much of that loss of capital would be covered by the loans it is lending.
However, the decision to expand the guarantee will make banks more vulnerable, with the ECB projecting that banks will face losses of about €1,300 ($1,700) per bank by the time the loans expire in 2021.
As a result, the total amount of capital that the banks will have to borrow to pay for their debts could rise by as much as €6 trillion over five years, the bank said.
Banks are expected to pay out about €2.6 trillion ($2.8 billion) by 2021.
However, the amount of money that banks have to make up from the extra loans they are taking will fall by about half by then.
With a loan guarantee extending for just a year, banks will be facing a further drop in capital as the risk of default is increased.
Some of the largest lenders, including Deutsche Bank, the world’s largest bank by assets, and Barclays, are already facing losses of at least €500 million per year as the euro crisis worsens.
The banks are also facing a rise in losses on their own debt, as they have borrowed from other eurozone countries to meet their loan repayments.
One of the most popular bank products in Europe, the collateralised debt obligations, or CDOs, are popular with bondholders because they are a safe investment and provide a hedge against future bank losses.
However there has been a surge in lending to banks by private investors, especially hedge funds and sovereign wealth funds.
Earlier this month, Barclays announced it was restructuring its entire risk-based CDO business, and its chief executive, George Kingsley, said the restructuring would increase its exposure to the global financial system by as many as 20 per cent.
There is also a risk that the European Central Banks (ECBs) new bailout program could lead to a collapse of the single currency.
If the ECB does not extend the current loan guarantee, the risk that banks may lose money and the impact on the financial system could grow, the head of the Bank of England, Mark Carney, said.
“The European central banks and their partners must now act urgently to restore the financial stability of the euro area,” he said.
Banking is currently a key sector of the economy in the European Union, with more than 1.5 million people employed in the financial services sector. “
It is vital that banks remain in the position they are in, and the financial conditions of the wider eurozone as a whole remain strong.”
Banking is currently a key sector of the economy in the European Union, with more than 1.5 million people employed in the financial services sector.
Since the onset of the financial crisis, the eurozone economy has shrunk by nearly 7 per cent, while the banking industry has shrunk from €1tn to €821bn.