The Running of the Bank Depositors

“I don’t know what’s going to happen in Europe but there is one thing that I am certain about – eventually, someone is going to take a big loss.  And that it’s not going to be me.”

– Jeffrey Gundlach, September 2011

If you’re a citizen of a peripheral Euro Zone country, your daily to-do list these days probably looks something like this:

1. Wake Up

2. Withdraw all cash from the bank

3. Ride a scooter through narrow streets without a helmet

Or something like that, the emphasis being on the second task.

I think it’s time we called it what it is – the Great European Bank Run that everyone knew would be coming eventually.  The EFSF forestalled it, the LTRO and coordinated central bank swap lines pushed it back…but now its actually here and it feels like it’s speeding up.

Things got very intense in the last few days after the wires put out a headline that the ECB was done performing liquidity operations with Greek banks in light of the new political situation.

And now things are getting completely out of hand…here’s the newsflow from just the last 24 hours:

Guardian:

Reports from Athens that massive sums of money were being spirited out of the country intensified concern in London about the impact of a splintering of the eurozone on a UK economy that is stuck in double-dip recession. One estimate put the cost to the eurozone of Greece making a disorderly exit from the currency at $1tn, 5% of output.

Telegraph:

Greek banks have lost 30pc of their deposits since late 2009. The total fell to €171bn in March. “The surprise is that there is still so much left. I can’t believe it will stay much longer,” said Simon Ward from Henderson Global Investors.

DealBook:

The world’s largest banks must raise a combined $566 billion to satisfy new capital requirements, Fitch Ratings said on Thursday, as the authorities demand that banks hold more cash in reserve to protect against future financial shocks.

The figure represents a 23 percent increase on what the banks currently hold in reserve

Zero Hedge:

The rating agency Moody’s announced this morning that the Spanish bank announced in the next 12 hours, as by law, a reduction in its credit rating could affect more than 21 entities. According to several sources, the statement will be released expected at nine in the evening.

Business Insider:

News that over $1.3 billion has been withdrawn from Bankia has sent that stock down about 20%.

Italian bank UniCredit is off 6%.

Banco Popolare is off 4%.

SocGen is down 3.5%.

Santander is off 3.1%.

STOXX Europe 600 Banks Price is off 2.4%.

This is what a bank run looks like, this is how it sounds and how it feels.  It’s been happening in Greece in slow-motion for three years now, but the fact that Spain is seeing a run on Bankia ($1 billion euros pulled since Wednesday), which was just bailed out last week, means that the pace has quickened.

And now the question is whether or not this actually pushes Germany’s hand to drop the austerity demands and make with the cash.  My friend Tom, a very clever Brit expat, shot me an interesting theory via email this morning, it’s a wild speculation and not one that he’s adamant about, but it’s worth considering:

Surely the best thing the Greek/Spanish/Italian people can do right now (whilst still in the Euro) is actually to start a major set of bank runs? This will force the ECB to backstop all G/S/I deposits as their existing mandate decries and therefore placing the ball firmly back in their court.

This is one of the major difference with Argentina – G/S/I has an exogenous lender-of-last-resort. If the G/S/I people did this where would it leave the ECB? They would have committed to backstopping every single depositors in €.

It’s surely the only way the G/S/I people can forcibly prevent themselves from getting fucked over like the Argentinian population did?

I wonder whether they’ve figured this out and that’s what we’re now seeing.

If so Germany is in real trouble…

Josh here, I wholly expect a new shock-and-awe announcement to come from the world’s central banks/political bodies at some point this summer, the timing of that is anyone’s guess.

Embrace the horror.

And if you want to see the flight of the euros illustrated, charts at FT Alphaville