A serious credit crunch in Germany and Europe becomes more likely at the advanced stage of the multiple crisis. Six large German banks failed the EBA stress test because their capital base is insufficient. Probably the state has to step in. What if he can not do it anymore?

Economy works in circuits that are reflected in cash flows in the financial sector. If only one link in the circuit chain does not work, this can be repaired. Currently, however, the principle of the circulation does not seem to work anymore. Sufferers could soon be consumers and companies: if no system-relevant actor is in a position to take on risks, a downward spiral threatens.

The rescue package for the rescuers gets in trouble – and even the IMF can not help anymore

The rescue package for the rescuers gets in trouble - and even the IMF can not help anymore

When banks threatened to collapse in 2008, the states intervened: unprecedented bailouts were carried out in the US, Europe and other parts of the world. In the following stage, countries in need: Greece, Portugal, Ireland, Italy and other countries needed and needed assistance from international bailouts, multilateral lending facilities, the EurCen Bank and the International Monetary Fund.

Rescue mechanisms have been constructed to protect states against default. These came to their limits faster than expected: The EFSF’s leverage effect, as desired by policymakers, is flattening out due to a lack of interested investors. In addition, the rescue mechanism threatens a downgrading by rating agencies, even before the first bond is placed in his name.

If states are no longer able to reliably refinance themselves and their deficits and debt mountains, the respective national and then the international banking system will initially falter. The collapse is already approaching when banks are forced to write down government bonds that were once considered safe from the gentleman. Then their capital base and thus the ability to take risks and lend to households and companies are reduced.

If the transfer of risks from the balance sheet to states is no longer possible because the states themselves are in difficulty, the question arises: who should assume (credit) risks in the future? If newly constructed bailouts fail, the answer is close: the IMF could step in and help countries along with their financial sector. Meanwhile, the currency fund itself is reaching its limits. In simple terms, it finances itself by borrowing from its member countries from their currency reserves. After deduction of all liabilities of the central banks there is not much to book.

Do the marginal costs of the risk determine the next years?

Do the marginal costs of the risk determine the next years?

The system is still not completely collapsed and the downward spiral is not inevitable. Nevertheless, a credit crunch is emerging. With HypoVereinsbank and Commerzbank, two large German banks recently announced serious cuts in their lending business. Behind this is a similar calculation as for the savings agreements of the EU summit and those in many euro member states.

Credit institutions could calculate the “marginal cost of credit risk” in the next few years. The marginal costs describe in business administration those costs of a company that are incurred in the production of another unit of its produced good. The credit risk is very important to the production costs of the product “credit”.

In the current situation, a decline from as many bank exposures as possible seems very attractive. After all, any reduction in credit risk has a disproportionate impact on market confidence. Trust means more customer deposits and lower risk premiums for bank bonds. This increases the profit margin.

An expansion of lending business, on the other hand, is hardly worthwhile, especially for large banks. As a result of the greater balance sheet risks, confidence would further dwindle and refinancing via the money and bond markets would be more difficult. From this perspective, a credit crunch will not only be possible in the coming months, but likely.

However, that does not mean that access to credit becomes impossible. Of the current events on the capital market, not all banks have long been directly affected. Smaller banks in the second and third series, in particular, are often predominantly involved in the German consumer credit market, which, with a default rate of around three percent, is one of the safest markets in the world. The main problems for banks are those that are involved in the euro periphery and in fragile real estate markets.

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