Wednesday, September 21, 2011

Worried about solvency, Lloyd's of London pulls deposits out of European banks

A Bloomberg article reports that Lloyd's of London is pulling its deposits out of European banks over solvency concerns.  This is further confirmation of the on-going run on the European banks.

By withdrawing its deposits, Lloyd's is also confirming that assurances of solvency without disclosure by regulators and banks is insufficient.

As the FDR Framework predicts, it is going to take disclosure of each bank's current asset and liability-level data to restore confidence.  It is only when market participants can assess a bank's solvency using granular information that confidence in the bank returns.
Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution. 
“There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.” 
European banks and their regulators are trying to reassure investors and customers that lenders have enough capital to withstand a default by Greece and slowing economic growth caused by governments’ austerity measures.  
Siemens AG (SIE), European’s biggest engineering company, withdrew short-term deposits from Societe Generale SA, France’s second-largest bank, in July, a person with knowledge of the matter said yesterday. 
Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions. 
“We have a very conservatively positioned balance sheet,” Savage said. Lloyd’s also holds about a third of its assets in mainly U.S. and U.K. government bonds and a third in corporate bonds, he said....

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