Moody’s on a roll: 13 banks downgraded in a week. French, German bank default wagers soar


http://money.cnn.com/2011/09/23/news/international/greece_downgrade_banks/index.htm?iid=Popular

The list of victims of this rampage include two major French banks: Societe Generale and Credit Agricole,  three large American: Bank of America (BACFortune 500), Wells Fargo (WFCFortune 500) and Citigroup. (CFortune 500), and eight Greek banks today.

Downgraded banks must pay more interest to borrow but central banks can inject funds into them at a discount.

The bets are against the banking industry in Europe today:

French, German Bank Credit Default Wagers Soar – Bloomberg.

In essence, as I understand it (I am certainly not a financier) banks swap (exchange) holdings to hedge (protect) from future downturns, essentially spreading the risk. It seems the pace is feverish today which augurs bad for Greece and the markets.

I still believe the euro zone will make it although it may lose one or two members in the process. One danger is that a major economic and financial debacle could bring nationalistic parties to power.

Advertisements