Bloomberg News

EU Bank Buffer Inadequate If Money Pulled, Goldman Sachs Says

May 22, 2012

The 1.1 trillion-euro ($1.4 trillion) liquidity buffer that Europe’s biggest banks have to guard against a flight of deposits will be insufficient if there’s a systemic loss of confidence, Goldman Sachs Group Inc. analysts said.

While the buffer would be ample to protect against the loss of confidence and a run on deposits at a single bank, it would be inadequate if customers withdrew their money across the region, the analysts including Jernej Omahen wrote in a note to clients today.

“If deposit loss occurs as a result of a systemic event, individual liquidity buffers would not prove effective,” they wrote. “Fears of a euro breakup, for example, could give rise to loss of depositor confidence on a systemic level. This would call for a regulatory response.”

Greece’s banking system lost 9 billion euros of deposits this year and has seen outflows of 73 billion euros since the 2009 peak, the analysts said. Speculation that customers were withdrawing money in Spain caused a 29 percent drop in the shares of Bankia SA (BKIA) on May 17. The Spanish government denied reports of a run on deposits at Bankia last week.

While there was concern that deposit flight had spread beyond Greece to the rest of Southern Europe, there was no supporting evidence, the analysts said.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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