Monday, 13 December 2010


Alphaville has just published the following enlightening table of foreign banks' exposures to Greece, compiled by the Bank for International Settlements (BIS):

While this is an elegant presentation, it tells us precious little that we don't know. But Alphaville hasn't reproduced my favourite BIS table, which can be found on pg. 18 of this, and which I reproduce with only minor editing below. All data refer to Q2 2010:

What does this tell us? The French banks are still the most exposed to Greece, but they've been cutting their exposure the fastest. At the current rate, the French banks could have no exposure direct to Greece whatsoever in 5-6 quarters from Q2 2010, i.e. in late 2011.  Now I know this isn't likely to materialise, but how hypocritical is it for the French to play good cop to Germany's bad cop, when they're the ones net selling EUR110m of Greek debt, mostly bonds, per day! At least the German banks are net buyers - in fact, the only net buyers of Greek bonds in their industry.

My eyeball estimate is that just short of EUR20bn of exposure to Greek bonds is being shifted out of banks' balance sheets each quarter - which means exposure could, in theory, reach zero in mid-2012. Which raises three issues:

1. Who's buying this stuff? Sovereigns, pension funds and the ECB.
2.  The closer we get to mid-2012, the more willing banks will be come to consider a Greek default
3. European taxpayers will pay for the Greek default.

UPDATE: Cross out the ECB: This just in. Also note that ECB's increasing share of Greek debt could just be the result of capital flight from Greek banks.

Btw. One wonders how well this policy of ECB as bank asset purgatory will last as the ECB becomes increasingly insolvent. Or as its bond purchasing programme becomes impossible to sterilise.


  1. ROFLMAO!! HAHAHA! I Love it!! XD
    So maany FAILZ (ECHECS plustot??) exposed by just one graph!!
    The best irony is the prevalent idea in Greece that "A sovereign default is the most socially responsible thing Greece can do for the people". Go tell that to baguette carrying french pensioners who'll be yelling "Sacre Bleu" when their funds get the finger from Greece!! =D

  2. @Anonymous: I too am in favour of a default as I don't see any other viable option for Greece. As you rightly point out, this is not a socially desirable outcome for anyone - especially (French and Greek) pension funds - but when a debtor turns out to be a much worse risk than you assumed when you bought their debt, you should pay the price for this miscalculation. If you think you were misled or deceived (which French banks/pension funds arguably were) then you can sue but that's about it.

    Happily for the Baguettistas, their funds' exposure to Greek bonds is mostly through their banks - which, one hopes, will be able to run down their capital buffers, get out of Greek bonds even if it means taking a small haircut and thus protect them from the worst of the fallout.

    Greek pension funds on the other hand will take a direct hit. So it's more likely to be a case of French would-be pensioners cheering Greek ones as they burn down Parliament.


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