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As ever, the IMF’s latest Global Financial Stability Report is worth a look, not least because the organisation’s chart makers seem to be getting a lot more creative. Some of the infographics in the report’s latest edition verge on the psychedelic.

More importantly, however, the IMF issues a stern rebuke to financial regulators for “incomplete policy actions and inadequate reforms”. The global banking system remains vulnerable to shocks, as some lenders remain “caught in a maelstrom of interlinked pressures”, the IMF warns.

Euro area banks are singled out as particularly vulnerable. Thinly capitalised and more reliant on wholesale funding than many of their counterparts elsewhere, some of the currency union’s banks—particularly those in the bloc’s troubled periphery—are now shut out from most funding markets. This is reflected in the interest rates that the most desperate banks are offering on deposits, seeking to reduce their reliance on official support by luring funds from wary savers.

The rate hikes by Greek, Portuguese and Irish banks in recent months have been significant, dampening these institutions’ profitability and prolonging an already protracted recovery process. Another interesting conclusion to draw from the chart—adapted from the one that appears in the IMF’s report—is that banks in Italy seem relatively more desperate for deposits than banks in Spain.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Reeling from the financial crisis and facing potential funding shortfalls, western banks turned to sovereign wealth funds (SWFs) for support during the credit crunch. In 2007 and 2008, these funds, mainly from Asia and the Middle East, pumped some US$70bn into the ailing institutions.

SEND HELP: Spain's prime minister meets China's vice premier on January 5th 2011

On state visits around Europe this month, Li Keqiang, China’s deputy prime minister, made headlines by suggesting that China stood ready to support the debt of the euro area’s troubled peripheral members. This, along with other sovereign investors’ recent history of dabbling in distressed assets, suggests that SWFs may play a role in alleviating the euro area’s current woes.

With more than US$4trn in assets, according to the SWF Institute, the funds’ collective might would be more than sufficient to cover the existing support facilities for Greece and the joint EU-IMF facility for other euro area economies in need (already tapped by Ireland). But how realistic is this?

Read more at Financial Services Briefing: “Sovereign crisis, sovereign solution” (January 12th)

There was some respite for Spain and Portugal this week, as both of the embattled euro-area members held relatively successful bond auctions. Analysis of the bond sales can be found at the parent site: “Spain: Unsteady balance” and “Portugal: Hard sell”.

Although benchmark yields in Iberia have had a good week—since Monday, the Portuguese ten-year government yield has fallen by 44 basis points while Spain’s has dropped by 21 basis points—the news coming from the countries’ banks is less encouraging. Still largely shut out from the capital markets, both Spanish and Portuguese banks boosted their borrowing from the European Central Bank last month. Data released this week show that Spanish banks relied on €67bn in funds from the ECB in December, up from €61bn the month before; Portuguese banks, meanwhile, tapped the ECB for €41bn in December, up from €38bn in the previous month.

For Portugal, the Economist Intelligence Unit believes that it is a question of when, not if, the country will seek access to the EU/IMF emergency credit facility (probably during the first half of this year). Spain is expected to service its debt without resorting to a bail-out, although its beleaguered banking sector remains a major downside risk to the sovereign.

Oh, for the halcyon days when the uproar over state aid in the EU focused on fisheries and railways. A new report from the European Commission updates the figures on aid provided by countries to their domestic industries, and in a related action the commission announced the extension of its “crisis framework” on aid to address “ongoing market failures”.

Support to the financial sector (“crisis measures” in the chart below) has dwarfed other forms of aid over the past two years. In 2009, financial firms were propped up by €1.1trn in guarantees and recapitalisations (€350bn of which counts as state aid), which makes €200m in aid to fisheries seem rather quaint by comparison.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Its media arm declares itself “the happiest TV in Brazil”, but Grupo Silvio Santos was far from jolly after the country’s central bank engineered a rescue of its banking unit this week. Banco PanAmericano, a mid-sized lender, needed a R2.5bn (US$1.45bn) emergency loan to cover a giant hole that apparently opened some time ago on its balance sheet.

The case generated temporary panic selling of shares in PanAmericano and similar banks. But it poses neither a threat to the Brazilian financial system nor reveals any general weakness among banks. PanAmericano may, however, be the first of many smaller lenders that have been undermined by providing overly generous credit to poorer consumers in recent years.

Read more at Financial Services Briefing: “A bump in the boom” (November 11th)

Some clarification is in order for recent accounts of the EIU’s forecast for Ireland. Specifically, we do not expect a default, as was reported here (and repeated elsewhere). Instead, our central scenario forecasts that Ireland will need to access the IMF-backed European Financial Stability Facility in mid-2011, when the country must return to the capital markets to service its debt. Ireland’s beleaguered banks will likely require further bailouts next year, and the government’s economic projections look far too optimistic. Following the recent spike in Irish yields, the government will struggle to convince bond markets that there is much more it can do to calm investors’ nerves.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

“The failure of a bank of that scale would render the nation insolvent”. This is what Brian Lenihan, Ireland’s finance minister, told broadcaster RTE on September 30th, explaining the fresh funds that the government will devote to bailing out Anglo Irish Bank, the country’s most troubled lender. At its peak, Anglo’s balance sheet grew to half the size of Ireland’s annual economic output, making it a prime example of a “too big to fail” institution.  

In addition to the €22.9bn (US$31.3bn) already injected into Anglo, the central bank now estimates that the lender will need an additional €6.4bn, bringing its total bailout to €29.3bn. Along with Anglo, Ireland’s other banks were subjected to new assessments of their balance sheet strength, with largely similar results.

The implications of Ireland’s ballooning bailout bill are daunting. Mr Lenihan said that the budget deficit this year will soar to an eye-watering 32%. As a share of GDP, the direct fiscal cost of Ireland’s bank bailout will make it one of the largest on record.

Read more at Financial Services Briefing: “More bad news” (September 30th)

The Spanish football team won the World Cup with a strategy that relied on dominating possession. But whereas keeping the ball served the country’s footballers well, a similarly grabby attitude among Spain’s banks is cause for concern.

The latest statistics from the European Central Bank show that Spanish banks boosted their borrowing from the central bank significantly last month, taking €126bn, or nearly 50% more than they borrowed the month before. Euro-zone banks as a whole trimmed their borrowing from the ECB by 4% in June.

As Bloomberg notes, no Spanish banks have sold bonds publicly in the past two months, as jittery markets demand high yields amid fears over the health of Iberian lenders’ balance sheets. Until next week, when the results of the EU’s banking stress tests will relieve or ratchet up these fears, Spain’s banks may take some solace from the country’s footballers, who despite rough treatment eventually emerged victorious.

New research from the New York Federal Reserve attempts to shed some light on the so-called shadow banking system, the vast network of lightly-regulated financial firms that failed spectacularly during the credit crunch. This is no easy task, as a series of headache-inducing flowcharts proves (a small excerpt from the paper’s coup de grace, on p3, is below; FT Alphaville, meanwhile, attempts to distil the paper’s findings in cartoon form). The paper itself is also somewhat mysterious, as the authors note that the first 70 pages are intended as an “executive summary” of a 230-page tome to which a full table of contents is provided but no further pages are published.

The Fed researchers define shadow banks as “financial intermediaries that conduct maturity, credit, and liquidity transformation without access to central bank liquidity or public sector credit guarantees.” At their peak, shadow banks amassed liabilities of nearly US$20trn, some US$8trn more than the traditional banking system. These intermediaries fuelled the subprime credit boom with cheap funds by converting “opaque, risky, long-term assets into money-like and seemingly riskless short-term liabilities,” the authors write. Of course, at the first signs of distress this seemingly riskless source of funds was found to be anything but.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Demetrio Fernández is not a name that comes up often in international financial circles. But the bishop of Cordoba made headlines in the business press on May 22nd when CajaSur, a church-owned regional savings bank, or caja de ahorros, was seized by the Bank of Spain due to “viability problems”.

The CajaSur rescue, although affecting only 0.6% of the total assets of the Spanish banking system, rattled already jittery markets. With heavy exposure to Spain’s battered property market and limited recourse to external funds, the cajas represent worrying “pockets of weakness” in the Spanish financial system, according to the IMF.

Given Spain’s dire fiscal state, it needs the explicit threat of seizure of uncooperative lenders to speed the long-delayed restructuring of the beleaguered cajas. However, the risk remains that the savings banks lack the collective will to fix themselves.

Read more at Financial Services Briefing: “A dangerous precedent” (May 26th)