Wednesday, December 7, 2011

Deloitte confirms Europe's banks insolvent, estimates they have 1.5 trillion pounds of toxic assets

According to a Telegraph article,

Europe's banks must dispose of a pool of toxic assets larger than the entire British economy if they are to return to profitability and meet new capital rules.
The article goes on to say,

Estimates from accountants Deloitte found that European banks currently hold more than £1.5 trillion of non-core and non-performing assets on their balance sheets. 
From the article's headline, it appears that there are 1.5 trillion pounds of non-performing assets.  If so, it is highly likely that all the European banks are insolvent.
Deloitte said that while banks will have to dramatically shrink the size of their asset books they are likely to face major challenge in doing so given the scale of the bad loan problems they face. 
British banks, despite beginning their disposal programmes much earlier than their Continental European peers, still have by far the biggest pile of toxic assets. 
Deloitte estimates the size of the non-core and non-performing assets held on the balance sheets of UK banks at £460bn, more than the combined total for Ireland, Spain and Italy. German banks come a close second with a toxic asset pool of about £447bn. 
It is one thing for bank's to be a 'black box' when they have few non-performing or toxic assets.  It is entirely another issue when banks clearly have so many non-performing or toxic assets that their solvency is highly questionable.

The time has come to require ultra transparency.  Each bank must be required to disclose on an on-going basis its current asset, liability and off-balance sheet exposure details.

It is only with this information that the market can determine which banks are solvent and which are not.

It is only with this information that the market can properly assess the risk of the banks and adjust both the amount and price of their exposure to the banks.

It is only with this information that the market can exert discipline on the insolvent banks to keep their risk levels in check while they are retaining earnings to restore their solvency. 

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